Loan Repayments Can Be Produced Up Without Being Taxed
An inside income provider (IRS) Chief Counsel Advice memo issued to help counsel in just one of the agency’s regional offices prov
The memo, dated August 30, provides two pictures to show how installment that is missed can be made without penalty. One utilizes a later on, bigger re re payment therefore the other employs an alternative loan. Both circumstances happen inside the hypothetical plan’s stated loan remedy duration.
Two Examples Offered
Both examples derive from the reality that: (1) the k that is 401( plan in question allows plan loans and permits for a remedy duration; and (2) that on January 1, 2018, the participant obtains an idea loan that will not surpass the permitted restriction on such loans, just isn’t a mortgage, includes a lawfully enforceable contract, and it is repayable in equal installments at the conclusion of every month for the contract, that will be amortized over 5 years.
In cases like this, the plan’s cure period allows a participant make up a missed installment repayment by the final time associated with the calendar quarter following the calendar quarter where the installment had been due.
The amount of the loan will be treated as having been received by the participant as a distribution from the plan as background, the federal tax code’s Section 72(p), which governs plan loans, provides that if a participant receives (directly or indirectly) a loan from a qualified employer retirement plan. Then a deemed distribution of the loan that may be taxable occurs, the IRS memo said if a plan loan satisfies these requirements but payments are not made in accordance with the loan’s terms.
Here you will find the IRS Chief Counsel information memo’s two examples
Circumstances 1: Make-Up Installment Payment.
