Unemployed and Drew 401K

[TaxMama note to employers: Times are tough and you may have no choice but to lay off employees. Before you do, see what you can do to help them avoid problems like these. It might mean keeping them on payroll for a little while longer while they seek a new loan. It might even mean keeping them on part-time for a while. It might mean you have to help them with loans. Who knows. But they would never have drawn 401(k) money if they thought they’d be losing their jobs. Please, find a way to help each other.]

Today TaxMama hears from Cathy in Arizona, in despair. “I was laid off from a job after over 18 years. I had a 401K loan that I was paying through my paycheck. It became due in full. There was no way for me to pay. Now I owe a tax debt I also cannot pay. What do I do?”

Dear Cathy,

I wish I had some good news for you. Unfortunately, I cannot think of a thing.

This is the kind of thing that you need to sort out BEFORE leaving the job. When you’ve been on a job for that long, surely the owners or officers of the company – or human resources, in really large companies, might have been willing to sit down with you and find a way to help you out – if only you had asked.

TaxMama’s philosophy is “It never hurts to ask. But nothing happens if you don’t ask.”

One of the things they might have helped you with is a loan on your home to help you pay back the 401k money. Or even a loan from the company itself? Believe me, guilt can work wonders if properly applied.

Now…the only things I can suggest is to either:

1) ask IRS for an installment agreement (Form 9465) http://www.irs.gov/pub/irs-pdf/f9465.pdf , or

2) If you’re not earning anything at all right now, ask IRS for a hardship hold on your account.

IRS Commissioner Doug Shulman announced early this year that his staff has been instructed to help people – if only you call them.
And remember, you can find answers to all kinds of questions about owing IRS and other tax issues, free. Where? Where else? At TaxMama.com

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