Search the Community

401K Plan permits In-Service withdrawals beginning age 59-1/2; partials of at least $1000. Participant is past Normal Retirement Age, actively employed, and has a Participant Loan with a substantial balance; let's say it is $40,000. Business has been flat this year and making the loan payments is increasingly more difficult. Last payment was end of November 2024. Next due is end of December (monthly payroll). There is a strong chance no wages will be paid for December. Participant would like the Loan Balance "distributed" this year, as the tax implications would be minimal due to extremely low income, per the CPA. There is hope that things will improve next year but not certain how quickly it may turn around or to what extent if any it will turn around. If the December 2024 loan payment is not satisfied, a default would occur and the correction period would run to 3/31/2025 per Loan Program. Can the Participant request in essence a (permitted) partial withdrawal equal to the Loan Balance, or in other words request a Loan Offset and no additional cash distribution at this time (i.e. in service)? And if yes, then Form 1099-R would be Code 7 but not Code M (since not termination of service or plan, not QPLO), zero taxes withheld? Thank you.

Good afternoon. Just when I think I understand the CARES Act . . . I cannot find a thread that discusses a loan offset under the following situation, though I was sure I had read one. Please advise me of the thread if one already exists. The participant had an outstanding loan and was up-to-date with his loan repayments at March 27, 2020. The Plan implemented the CRD and CARES Act loan provisions. Loan repayments were suspended until January 1, 2021, at which time they are re-amortized and resumed. The participant is a qualified individual and stopped making loan payments when the Plan offered the loan suspension. The Plan permits participants to continue making loan repayments after termination of employment. The Plan provides that a loan is in default if payment is not made the end of the maximum cure period On June 1, 2020, the participant, while still a qualified individual, terminated employment and took a CRD of all his vested account, except for the outstanding loan. When does his outstanding loan become a loan offset: June 1, 2020, when he took the CRD distribution? No--because the Plan permits him to continue making loan repayments after termination of employment. And, the IRS has suspended loan repayments until July 15, 2020. OR Yes--because he took distribution. He can treat the entire amount, including the loan offset, as a CRD distribution. (The sum of the CRD and loan offset are less than $100,000.) July 15, 2020, when he failed to resume loan repayments? No, because he is a qualified individual and has until January 1, 2021 to resume loan repayments. OR Yes, because he had 30 days after termination of employment to repay the loan and he did not. He can treat the entire amount, including the loan offset, as a CRD distribution. January 1, 2021 if he fails to resume loan repayments? If so, this cannot be treated as a CRD because it occurs after December 31, 2020. Thanks for your help.

Hello, Hoping someone can help me figure this out. In June 2014, the plan changed TPAs and there was an error in the transfer of loan balances from the old TPA to the new one, causing certain loan payment schedules and balances to be wrong. In July 2015, the new TPA corrected the payment schedules and the loan balances for the loans affected, however the way they did those adjustments have cause the 2015 loan report to be inaccurate. 1- the beginning loan balances per the 2015 loan report do not agree to the 2014 ending balances. The beginning balances actually seem to be exactly the balances as of the TPA transfer date in June 2014. These balances also appear in the participant's account in the annual activity report under a "converted value" column 2- there are two loans that were offset in 2014 and zeroed out in 2014 when they were deemed distributions. In 2015, because of the issue explained in #1 above, the loans appear to have a beginning balance and are then offset again, causing yet another deemed distribution. This distribution appears in the participant's account in the annual activity report and was therefore included in Form 5500 line 2e(1) when prepared. This is merely a reporting issue since the taxable event occurred only once in 2014, when the 1099s were distributed. In order to correct the 2015 form 5500, I would think distributions line 2e(1) needs to be reduced by the amount of the double counted deemed distributions. Question is, what other line in Schedule H should be adjusted to make it balance? I would think Plan assets needs to be increased, but is that correct? I asked the TPA, since I don't know their system, when the loans were put back on in 2015, what was the other side that was affected so I know how to correct the problem. However, they are not understanding what I mean. As an accountant, we tend to think in terms of debit and credits. Thanks in advance!