Dabbs, Hickman, Hill & Cannon, LLP logo

Dabbs, Hickman, Hill & Cannon, LLP

 

319 South Main Street, PO Box 727

Statesboro, GA 30459

Phone: 912-764-6951

 

325 Tattnall Street

Savannah, GA 31401

Phone: 912-233-9004

June 2020

June 2020 Client Profile

Client Profile

At the beginning of the year, Phil, age 40, took out a 401(k) loan to use as a down payment on his new home. When the coronavirus hit, Phil was laid off from his job at a travel tech firm as flights all but came to a standstill.


Along with the bad news of losing his job, Phil also found out that his outstanding 401(k) loan balance of $20,000 will be due in full by April 15, 2021. What options are available to Phil?


Phil must either repay the full loan balance by the deadline or treat the amount as a distribution. In the first scenario, he must save over $2,000 each month in order to pay back the loan by April 2021.


In the second scenario, Phil will have to pay state and federal income tax on the money withdrawn. However, thanks to the Cares Act, the 10% penalty for the withdrawing the funds before age 55 will be waived. Depending on how quickly he returns to work, the distribution may even bump him up into a higher tax bracket.


Client Profile is based on a hypothetical situation. The solutions we discuss may or may not be appropriate for you.


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