Loan from 457 to pay debts

Forum|Forum|1 year ago
November 7, 2024
2 replies
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I borrowed money from my 457 to pay off debt. Can the IRS charge me taxes on the portion of debt forgiveness, if the money used to pay it was from my 457?

Best answer by dmertz

The amount of debt forgiven is an amount that you didn't pay with money from a loan from your 457(b) or money from anywhere else. The amount forgiven is taxable income to you independent of any amount that you did pay off.

xmasbaby0

Employee

Money you borrowed from your retirement account has to be paid back to the account---so no, you are not taxed on it unless you do NOT pay it back. If you do not re-pay it, then it becomes a distribution, and you will owe tax on the money you took out of the retirement account. Paying debts is no exception to that.

**Disclaimer: Every effort has been made to offer the most correct information possible. The poster disclaims any legal responsibility for the accuracy of the information that is contained in this post.**

dmertzAnswer

Employee

AmandaCRichAuthor

OK, thank you. I just don't understand how/why I'm paying taxes on money o never actually had, but that's fine... So, aside from insolvency there's no way to avoid these taxes from the debt forgiveness?

dmertz

Employee

Debt forgiveness is effectively money paid to you by the loan company that you then use immediately to pay off part of the loan. This money effectively paid to you by the loan company is taxable income to you .