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The information in this e-newsletter is for general guidance only, and does not constitute the provision of legal advice, tax advice,
accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used
as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or
taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular
situation.
The author of the tax articles in this e-newsletter did not intend nor write the advice to be used to avoid any penalty imposed by a
taxing authority, nor may any user/recipient of this document use this document's written tax advice for that purpose. This document's
tax advice was written specifically to support the promotion or marketing of the transaction/matter addressed by the written tax advice.
Therefore, any user/recipient of this document should seek an independent tax professional's advice regarding the user/recipient's
particular circumstances.
The information is provided "as is" with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and
without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for
a particular purpose.
The information in this e-newsletter is for general guidance only, and does not constitute the provision of legal advice, tax advice,
accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used
as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or
taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular
situation.
The author of the tax articles in this e-newsletter did not intend nor write the advice to be used to avoid any penalty imposed by a
taxing authority, nor may any user/recipient of this document use this document's written tax advice for that purpose. This document's
tax advice was written specifically to support the promotion or marketing of the transaction/matter addressed by the written tax advice.
Therefore, any user/recipient of this document should seek an independent tax professional's advice regarding the user/recipient's
particular circumstances.
The information is provided "as is" with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and
without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for
a particular purpose.
| Serving the Central Pennsylvania area since 1981 |
| Robert A. Romako, CPA |
| 401(k) Loans: Danger, Will Robinson, Danger! |
With gas prices and other costs higher, you may be tempted to borrow from your 401(k) plan to
meet cash needs. The terms sound good – usually plan loans call for relatively low interest rates
and besides, you are just paying yourself the interest, right?
There are two major problems with borrowing from your account. First, should you terminate
employment before the loan is repaid; the unpaid balance is due immediately. If you cannot repay
the plan, the balance is treated as a premature distribution and is subject to federal and
Pennsylvania income tax. In addition, if you are under age 59½ , you may be hit with an additional
10% early withdrawal penalty. In this age of corporate layoffs and bankruptcies, job security over
the term of your loan may not be assured.
The second problem is that to borrow from your account, you must sell investments. With the
securities market in a downturn, you may be selling your plan investments at a low to fund your
withdrawals. It may be better to seek loans outside your 401(k) plan instead. In addition, should
the market rebound, you will have a greater number of shares available for appreciation.
meet cash needs. The terms sound good – usually plan loans call for relatively low interest rates
and besides, you are just paying yourself the interest, right?
There are two major problems with borrowing from your account. First, should you terminate
employment before the loan is repaid; the unpaid balance is due immediately. If you cannot repay
the plan, the balance is treated as a premature distribution and is subject to federal and
Pennsylvania income tax. In addition, if you are under age 59½ , you may be hit with an additional
10% early withdrawal penalty. In this age of corporate layoffs and bankruptcies, job security over
the term of your loan may not be assured.
The second problem is that to borrow from your account, you must sell investments. With the
securities market in a downturn, you may be selling your plan investments at a low to fund your
withdrawals. It may be better to seek loans outside your 401(k) plan instead. In addition, should
the market rebound, you will have a greater number of shares available for appreciation.
MAY 2008
| Robert A. Romako, CPA Phone:717.774.3047 |