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401(k) Loan Pitfall #4:
Double taxation!
This one really gets us fired up – as if Uncle Sam doesn't get enough of our hard-earned money! Here's an example of how you can be taxed twice for the same money … Suppose you borrow $10,000 from your 401k. You're borrowing pre-tax money, right? (One of the benefits of having a 401k!) You need to pay back that money, of course … but when you pay it back, you're paying it back with AFTER-tax money – money that you're getting taxed on that year. BUT here's the rub: When you take out that money when you retire, you pay tax on it once again!
Next: 401(k) Loan Pitfall #5
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Your Top Money Questions - Answered!
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Child Savings AccountsWhen opening a savings account for your child, make sure their Social Security number is used as the account's tax identification number. That way, as long as your child is under age 14, interest earned will be taxed at your child's lower tax rate, not at your tax rate. This rule holds true as long as your child earns less than $1,800 a year in interest. |
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