Gannuscio

Thanks for the clarification ETA Consulting. I took all paperwork to my CPA yesterday and we are going to protest the 1099 through the IRS and see where we end up. He wasn't confident either way and said it could depend on who's desk it ends up on. It's mind boggling to me that our tax code / regulations are so complicated. I will follow up in a few months just to give everyone an update on the IRS response. Thanks all for the information feedback as it was a helpful starting part to give my CPA information.

Sorry for so many messages. I just received the Summary Plan Description. It notes: "Loan - You may borrow up to a maximum of $50,000 or 50% of your vested account balance, whichever is less. The minimum loan is $1,000, and you may have up to 2 outstanding loans at any one time. Loans must be repaid within 5 years, although residential loans have a maximum repayment term of 15 years. The annual interest rate is the Prime Rate at the time you take the loan plus 1%. You repay the loan bi-weekly through after-tax payroll deductions. If you leave the Company, you may continue to repay the loan. If you default on the loan, the remaining principal amount becomes taxable income, and you will receive a 1099 form to claim with your taxes." Thoughts?

RatherBeGolfing, So are there different rules related to Loan Offset? If I quite my job at the end of July 2013, when should the loan be considered offset? According to Charles Schwab they could offset it whenever they feel. Thoughts? Thx Brian

He's also telling me there are no rules on when they have to 'Default' on the loan. My response was, "so you could default 10 years later?" and he said YES! With that said, he wouldn't put anything in writing for me. He kept referring back that I was personally responsible for the loan. It's all mind boggling to me. I would love to hear the thoughts the professionals here. Ps. I am hopeful I can take out a 401k loan this year and stop making payments on it immediately with the hopes they default once I am dead.

I am talking to them now. He says Tax Code: 1

Hey all, Just an update. Charles Schwab is now telling me on the phone this is not a 'Deemed Distribution' as a 'Deemed Distribution' will only happen with a current employee that stops making payments on a 401k loan. I asked him what he called it and he said he was going to do research and now I'm on hold. I just don't understand how it take someone completely from the outside (IT world) to try to figure this stuff out. If it's not a 'Deemed Distribution' what would it be called? Is it treated any differently if you are a current / prior employee on defaulting on a 401k loan? Thoughts? Thx Brian

Thanks for the info, I will send in a request for that. In terms of your question, yes I believe my tax liability would be around $6500 less if the income was taxable in 2013. In 2013, I didn't make nearly as much as I did in 2014 and with the additional income for 2014, I lost several deductions.

Hi All, A quick follow up question. I have gone through most of my 401k documentation and the only thing I can find related is the following statement from Charles Schwab: "If you have an outstanding loan from the Plan, your Plan benefit may be offset by the amount of the loan, typically when your employment ends. The loan offset amount is treated as a distribution to you at the time of the offset and, if the distribution is a nonqualified distribution, the earnings in the loan offset will be taxed (including the 10% additional income tax on early distributions, unless an expection applies) unless you do a 60-day rollover in the amount of the earnings in the loan offset to a Roth IRA or designated Roth account in an employer plan" Question: Is this the 'Plan Document' language or should I be looking somewhere else? Thanks in advance. Brian

Hi All, Great feedback, thanks much. As an outsider of the benefits world, they definitely don't make this stuff easy to understand. To me the difference is $6,500 in a tax bill which is pretty significant. I am trying to dig up the plan documents to see what the cure period says which may provide more relief. With that said, I will also reach out to IRS to get their thoughts.

Hello Everyone, I just received a notice from the IRS today that I was somewhat expecting. With that said, I believe the organization that issued the original 1099 has the year wrong. Scenario: I worked for company ABC for 7 years and took out a 401k loan. I was making regular payments through my paycheck until I left this company at the end of July 2013. I never did receive a 1099 and actually forgot about it until I got the 1099 in May of 2014. (This is when I knew I would be expecting a bill from the IRS in the future) I received the bill today in regards to my 2014 taxes. I believe the distribution from my 401k loan should have been on 12/31/2013 (for my 2013 taxes) based on the following: Per the IRS: "For example, if the quarterly payments were due March 31, June 30, September 30 and December 31, and the participant made the March payment but missed the June payment, the loan would be in default as of the end of June, and the loan would be treated as a distribution at the end of September. " I currently have the organization that managed my 401k doing 'Research' because they were not able to give me answers over the phone. Can someone confirm whether I am correct or wrong? Thanks in advance.