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$5,000 Force-out


Guest koolkidd

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Guest koolkidd

A terminated participant in a 401(k) has a total account balance of $5,649.03. Of that, $2,600.00 is an outstanding loan. If the loan is deemed distributed today, what is the account balance for purposes of considering the $5k threshhold? $3,049.03? Or, is the loan still considered an asset?

I am trying to determine if a terminated employee can be forced out of the plan after his loan is deemed distributed and the remaining assets in the account are valued at less than $5,000.

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My understanding is that a deemed distribution of a loan is for tax purposes only, so that you cannot force payout upon this participant because his balance is still in excess of $5k for that purpose. Why the timing of deeming the loan distributed today? Is the loan in default and is today the day it is required to be deemed distributed?

"What's in the big salad?"

"Big lettuce, big carrots, tomatoes like volleyballs."

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Guest koolkidd

"Today" was hypothetical. The default date will actually be 90 days after the last day of this month.

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Depending upon what the plan's loan policy says, you may be able to distribute the loan because the participant has terminated. The balance would then be under $5,000 and I believe you could force it out since the rule that said you could not if the balance was ever over that amount went away with one of the recent law changes.

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I'm going to say it depends. What does your document say? Can loans be repaid after termination? If so, then I agree with Blinky. If loans can't be repaid after termination then I'd problably agree ljr, the loan would be offset and you have an actual distribution.

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