What are the tax implications of a 401(k) loan in retirement?

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by kimberly , in category: Retirement Planning , 9 months ago

What are the tax implications of a 401(k) loan in retirement?

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1 answer

by cornelius.fay , 9 months ago

@kimberly 

A 401(k) loan in retirement may have the following tax implications:

  1. Repayment Taxes: If you have a 401(k) loan outstanding at the time of your retirement, you will generally need to repay the remaining balance in full, typically within a certain time frame. If you fail to repay the loan in time, it can be considered a distribution, which may trigger income taxes.
  2. Income Taxes: If you take a 401(k) loan and repay it according to the terms, the loan amount doesn't count as a distribution, so it won't be subject to income taxes. However, once you retire and start making withdrawals from your 401(k), the amount you withdraw, including any outstanding loan balance, will be subject to income taxes.
  3. Early Withdrawal Penalties: If you are under 59½ years old and fail to repay the outstanding loan balance after retirement, it may be treated as an early withdrawal. This can result in income taxes on the distribution as well as a potential 10% early withdrawal penalty.


It's essential to carefully consider the tax implications before taking a 401(k) loan in retirement, as it can impact your overall retirement savings and tax liability. It's advisable to consult with a financial advisor or tax professional to better understand the specific consequences for your situation.