Terminated employees carry old loans to new plans?

[Guest Michael Anderson]

Can a terminated participant who rolls over their 401(k) account to their new company 401(k) Plan carry his loan balance with it-continuing to pay as if nothing changed? Thanks for the insight.

[Guest b2kates]

Is the old plan willing to transfer the loan as an inkind transfer to the new plan and does the new plan permit loans?

[mbozek]

If the new plan permits the loan can be continued after a rollover or trustee to trustee transfer. Tne new plan is subsituted as the creditor in the note signed by the employee to secure the loan.

[Mike Preston]

In addition, there is at least 1 PLR out there that allows the new employer to modify the payment stream to accomodate different payroll cycles. So, if the loan was being paid off in bi-weekly installments, and the new employer has semi-monthly payroll periods, the modification of the loan payments to accomodate the less frequent payments is OK with the IRS. The only requirement is that the period of the loan not be extended by the revised payment stream, as I recall. There may be other requirements, but this is the big one.

[Guest Michael Anderson]

The new plan does allow loans and has no problem with the participant rolling his loan over, we just wanted to make sure there would not be a problem with the IRS. So, as long as the length of the loan is not extended, it sounds like there should be no problems?? Thanks for the info.

[QDROphile]

I know I am asking for trouble, but I simply could not resist observng that the the IRS is legally wrong about its position that loans are rollable. Even the IRS forgot forgot a fundamental difference between rollovers and transfers. Don't get me wrong. It is a very practical position and you can do it with impunity subject to IRS rules, but the IRS position is unprincipled. It is a policy cramdown.