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Loans at Retirement


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For years beginning after 12-31-01 a taxable loan taken at retirement is now an eligible rollover distribution subject to mandatory 20% withholding if not directly rolled over to an IRA or other qualified plan. What body authorized this new rule? Please cite the authority. Are any plans exempt from this new rule?


Joel L. Frank

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The authority for this would be Treas. Reg. § 1.402©-2, Q&A-9. This in turn is based on section 402© of the Internal Revenue Code of 1986, as added by sections 521 and 522 of the Unemployment Compensation Amendments of 1992, Public Law 102-318, 106 Stat. 290 (UCA). The rule would therefore apply to distributions from 401(a) plans. Section 403(B) also incorporates this rule by reference.

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