Can you borrow from 401k in ch 13?
First of all, you will be turning a protected asset into an unprotected asset of cash – potentially risky in Ch 13 if your trustee is one of the more difficult ones. Second, If you borrow from your 401K now, are you going to be able to pay it back in full within a year to avoid the 10% tax hit at the end of next year? If the answer is no, then this is not a good plan. Anything you don’t pay back not only causes a tax hit, but the IRS considers income for the year as well. Your trustee will see it when he/she reviews your tax returns for the year (unless you are one of the lucky ones with a trustee who doesn’t care about tax returns every year). I think this plan needs a lot more thought about the long term consequences. You also need to get your lawyer’s input and blessing for this before you do it.
