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401k Loan Default

I left my company and defaulted on a 401k loan. The amount owed was about 12000 dollars. Do I have to pay the 10 percent fee and fed taxes now, or within a quarter, or can I wait until I file next year. If I do wait until I file next year, will there be an additional penalty for not paying enough taxes during the year. I was once told that, in anticipation of substantial dividends, I should have my employer take an additional sum for the feds, as there would be a penalty. Is that true?

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Reply to
Mitch
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Either of the above will do. But to save on penalties you might want to be sure that you pay enough in to meet one of the safe harbor rules. Most likely paying in about 110% of last years taxes (Line 63 of 2005 Form 1040) will cover it. Also, if you have teh money now, set the remainder of your expected tax aside in a short term (6 month?) CD so you are assured to have it next April. The balance can be paid with the return without penalty. You will want to be sure to over withhold next year (2007) so that you don't get any penalty for underpayment.

Possibly, if you don't meet one of the safe harbor rules, you could be penalized.

Yup. You can have extra withheld, but paying enough in now and banking the rest will benefit you the most.

-- Paul Thomas, CPA snipped-for-privacy@bellsouth.net

Reply to
Paul Thomas, CPA

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