Guest DLH Posted February 28, 2002 Posted February 28, 2002 I have a participant who took a plan loan from his 401(k) plan. the company is now filing for bankruptcy (chapter 7) and the plan is being terminated. Short of paying the full balance off is there any way to keep the participant from suffering a premature withdrawl/defaulted loan? The loan balance is large so paying it off is really not possible. Any one with any creative ideas. I can't come up with any. Thanks
Mike Preston Posted February 28, 2002 Posted February 28, 2002 Have him or her find a new job with a company that will allow a rollover of the loan? Seems like a bit of the tail wagging the dog.
Kirk Maldonado Posted February 28, 2002 Posted February 28, 2002 The new plan might have some reservations about accepting a rollover from a plan whose sponsor is in bankruptcy. Kirk Maldonado
mbozek Posted February 28, 2002 Posted February 28, 2002 Does he have any other line of credit, e.g., home equity loan that he could use? Equity loan is tax deductible up to $100,000. His only optiion is to find another source of funds to repay the loan e.g., does he have a spouse who can borrow from his her own plan? mjb
Erik Read Posted February 28, 2002 Posted February 28, 2002 I like the idea of finding other options to payback the loan. The other employer idea would be great, but not many allow for instant rollover of balances. Keep us posted on what the participant decides to do - especially if its not something we've suggested. __________________ Erik Read, APR CKC
Guest DLH Posted March 4, 2002 Posted March 4, 2002 We found out that the participant has started his own company. So we are going to set up a one person plan and rollover the loan and account balance. I don't think we have any issues here....does anyone see any problems with this?
Guest b2kates Posted March 4, 2002 Posted March 4, 2002 make certain that his new business is incorporated and did not elect S status. unincoporated plan sponsors are still not permitted to have loans to owners, neither can S corps.
mbozek Posted March 4, 2002 Posted March 4, 2002 b2kates not true. See EGTRRA sect 612(A) effective 1/12/02 mjb
Guest DLH Posted March 4, 2002 Posted March 4, 2002 I didn't look up the regs on this but it is my understanding that EGTRRA did away the prohibit transaction that would occur if an owner took a loan within an S corp. Correct?
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