Where is the tax liability? Borrow 401K to fund Roth IRA.
 

Am I missing somethhing here? If you would borrow pre-taxed money from your 401K to fund your roth IRA which is after tax money, where does the tax liability money come from? I don't see any money going to pay taxes.

Re: Where is the tax liability? Borrow 401K to fund Roth IRA.
 

Why would you want to do this?

fwiw, you are repaying the 401K with after tax $.

Re: Where is the tax liability? Borrow 401K to fund Roth IRA.
 

But - you are withdrawing it tax free!

Thank you,

Jim Kuhn
Catfish4u
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Re: Where is the tax liability? Borrow 401K to fund Roth IRA.
 

It works out the same no matter where the money comes from. A Roth is a great savings place if you have no 'high dollar debt'. You can withdraw the Roth principal tax free at any time but the earnings must remain until retirement to be tax free.


Thank you,

Jim Kuhn
Catfish4u
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Re: Where is the tax liability? Borrow 401K to fund Roth IRA.
 

You are not actually "withdrawing" it. You are simply borrowing it from yourself.

As a general rule, borrowing from a 401K has risks associated with it and is generally not a good idea. The biggest risk being that you have to repay all 401K loans if you switch jobs, or have it treated as a withdrawl, which includes a penalty and tax liability.

Re: Where is the tax liability? Borrow 401K to fund Roth IRA.
 

Ok now that i know i'm paying myself back with after tax money when I borrow. Not withdrawing. Could this be the way to go to fund a roth IRA?
I am looking for ways to maximize my Roth.

Re: Where is the tax liability? Borrow 401K to fund Roth IRA.
 

The first thing you should do is read the documents you have pertaining to the loan provisions of your 401K, as there may be limitations on what you can do with the proceeds of the loan.

Re: Where is the tax liability? Borrow 401K to fund Roth IRA.
 

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The first thing you should do is read the documents you have pertaining to the loan provisions of your 401K, as there may be limitations on what you can do with the proceeds of the loan.

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hey snip, i'll try to look for this information. But can we withdraw money from our 401 and if so what problems will we incur?

Re: Where is the tax liability? Borrow 401K to fund Roth IRA.
 

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But can we withdraw money from our 401 and if so what problems will we incur?

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For early withdrawal from your 401K, you will incur a 10% penalty and full tax liability.

Re: Where is the tax liability? Borrow 401K to fund Roth IRA.
 

STG,

One other thought, if you are trying to simply shift $$ from a limited option 401K to an IRA to gain the benefit of more investment options... you should be able to rollover your 401K into a Traditional IRA, without incuring any penalties.

Your reasoning on doing this, is still not clear, so not sure if this helps you or not.