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Can You Split a Loan Before Rollover to New 401(k) Plan


rocknrolls2

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Company M maintains a 401(k) plan that contains a number of features, including after-tax contributions and Roth 401(k) contributions. Company T participates in Company M's 401(k) plan. M has reached agreement with Company U to sell the stock of Company T. U will establish a new 401(k) plan but it will not have after-tax contributions or Roth 401(k) contributions. U will enable Company T employees to roll over their account balances in Company M's 401(k) plan other than after-tax contributions, Roth 401(k) contributions and that portion of outstanding plan loans containing after-tax contributions and/or Roth 401(k) contributions. Can M divide the loan into two: one portion including the portion of the loan attributable to contributions other than after-tax contributions and Roth 401(k) contributions and the other loan being the portion of the loan attributable to after-tax contributions and Roth 401(k) contributions? Why or why not?

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This was posted on 3 different board basically at the same time?

Having braved the blizzard, I take a moment to contemplate the meaning of life. Should I really be riding in such cold? Why are my goggles covered with a thin layer of ice? Will this effect coverage testing?

QPA, QKA

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I deleted the dupe posts.

It sounds like U will let T folks roll part, if that is the case, it makes the arguement that the rollovers for T's are voluntary and not mandatory as in trust to trust transfer. If these are voluntary and T's can leave the funds in M plan, does M plan allow for partial distribution?

Not sure about splitting like that for the loan. If this is definately what they plan to do, can you do trust to trust transfer of tax deferred sources and related loan balance to U plan then allow Ts new loan to pay off the AT and Roth loan in M plan so the participants can roll those funds to IRA?

JanetM CPA, MBA

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If M permits partial withdrawal of just pre tax funds let then Ts can roll that to U. Then the Ts can leave AT and roth in M plan (if over the mandatory cashout). Issue is - does M allow picking souces or is the w/d prorated over all sources? If plan does prorated partial you are dead in the water.

Now of course the Ts could roll the funds into traditional IRA and Roth. Then if U allows they can roll from traditional IRA to U plan.

JanetM CPA, MBA

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