AboutAllen Expertise Pension questions ONLY. Pension, profit sharing, and 401(k) plan design, installation, administration and actuarial services; rollovers to Individual Retirement Accounts; taxation of retirement plan distributions
Experience Over 35years experience in the pension field
Organizations Various actuarial organizations
Education/Credentials MBA and various professional certifications
Question I have a similar question to the previous one about defaulting on a loan from a retirement plan. As in that case, I defaulted on a loan that was for a first-time home purchase. So while I realize that I have to recognize the amount I received as income, shouldn't it be exempted from the 10% penalty, because the money was used for a first-time home purchase and meets the criteria for that exception?
Answer Unfortunately, I believe the penalty applies. If you had originally taken a hardship distribution to purchase the home (assuming your plan allows hardship distributions), you would avoid the penalty. However, the reason for the taxable distribution is default on the loan and I don't believe the purpose of the loan matters.
