We have a participant who just took a full distribution for termination and she had an outstanding loan balance. She wanted us to withhold taxes for the outstanding loan balance as well as her distribution so she wouldn't have to pay them. What we did is put the distribution in at Schwab with the total gross balance as the entire vested balance plus the outstanding loan, then calculated federal and state taxes based on that number, then put the outstanding loan balance in "less loan balance" to offset the actual payment amount to be correct. The partipant's accountant is asking whether the loan balance, which is now a distribution and being taxed, is going to be taxed as a part of 2025, when this total distribution happened, or as 2024, when she took out the loan. Will it be a seperate 1099 for 2024 with the loan balance or will it all be part of the 2025 distribution?
