deductible participant loan interest

[Guest billy bong]

may a participant deduct on their personal tax return the interest they are paying on a loan they are repaying into a pooled account if the source of the loan is from 401k moneys. i know that er moneys loaned and paid to a pooled account are deductible but not sure if there was a distinction if it was from 401k moneys.

[Dawn Hafner]

No deduction is allowed for loans secured by elective deferals. In addition, no deduction is allowed if the employee is a key employee. IRC Section 72(p)(3)

[david shipp]

I believe that the general disallowance of consumer interest deductions overlays the whole issue. For example, interest on a loan of purely employer money wouldn't be deductible unless it was a principle residence loan that was secured by a lien on the residence. If the security was the account balance, the interest wouldn't be deductible even though the loan was for the purchase of a house. In addition, if the loan was for a house and it was secured by a lien, it still wouldn't be deductible if it was to a key employee or was made from elective deferrals.

[Dawn Hafner]

I agree with David in regards to the consumer interest. I did not clearly mention that in my earlier response.

[Guest billy bong]

if a participant loan meets all of the requirements for the interest to be deductible, (i.e. source is not from elective deferrals, lien on residence, non key person) but the interest is being paid to their individual/fbo account, is it deductible on their personal tax return?

in irc 72(p)(3), there is no refernce as to where the interest is being paid.