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I think I'd recommend the following course of action but you do what you want. 1 - suggest they terminate the plan 2 - get paid in advance 3 - if possible, treat the distribution of the loan as a qualified plan offset (gives her till next October to come up with funds to pay off loan as rollover). you can probably only do this if the plan is terminated before the cure period expires. 4 - resign if they want to keep the plan going without repaying the loan on the loan schedule.

There is no exception for less than $1,000. You have to give them notice before you do the involuntary distribution. There is an exception to the WH requirements when the total distributions for the year is less than $200 (or for the first distribution of less than $200 if subsequent distributions gets you over $200). My understanding is that there is no exception to the the 402(f) notice requirement for distributions under $200, but some of the language in the notice will not apply to a distribution of less than $200.

First, the plan document must allow for involuntary rollovers; not all of them do. One place I worked, put the cap at $1,000 so they did not have to worry about forced rollovers. Second, will someone please show me the exception to providing the 402(f) notice if the distribution will be less than $1,000 or $200? It doesn't matter whether, or how much, taxes will be taken. If the distribution is eligible for rollover at all, the notice MUST be given, in my opinion. The special tax notice explains a lot of things other than the 20% withholding. It mentions withdraws under age 50 1/2. They types of accounts that may accept a rollover. It explains direct and indirect rollovers. It explains treatment of loans, Roth, company stock. I see nothing in 402(f) that mentions any thresholds. (OK, I probably wouldn't send one for a distribution under $10, as no 1099 is generated for that.)