I lost my job but not from COVID. Will I pay a 401(k) penalty?

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Q. I lost my job not through COVID but from other circumstances. If I took out $15,000 from my 401(k), would that be held to a 10% penalty? If there is a penalty, how would it be paid? I also have an outstanding $8,000 loan from the 401(k) and I’m not sure I can pay that back without a job. What happens then?
— Jobless

A. We’re sorry to hear about your job loss.

If you had lost your job because of the pandemic and you were experiencing economic hardship, you would be eligible to have the 10% penalty waived, said Jonathan Donenfeld, a certified public accountant with JLD Tax & Accounting in Jersey City.

Non-coronavirus-related early withdrawals are subject to the penalty.

You will still have to pay taxes on the amount.

“Normally the brokerage will withhold the 10% penalty unless you provide them with documentation that you qualify for economic hardship or had to take the distribution due to COVID,” he said.

On the loan, we have bad news.

“If you are unable to pay back the loan, it turns into an early distribution and is subject to income tax and the penalty,” Donenfeld said.

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This story was originally published Nov. 5, 2020.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.