prohibited transaction?

[Guest Julie Woulfe]

The owner of the company takes a large withdrawal from the Plan Trust. (The withdrawal is less than the amount of his account balance in the Plan). Is this a prohibited transaction reportable on Form 5330?

[austin3515]

Good question!

Is he over 59.5 and does the plan allow for such in-service distributions? IF so, there probably isn't a problem, but make sure the document was followed.

If the above does not apply, does the plan allow for loans? I would try to structure it as a loan, and have him make up for whatever he was behind on his loan payments at the time of discovery.

Was the money taken from his account? I.e, was the reduction applied to his balance? If so you could probably argue that it was some sort of an operational failure, but the money should be repaid.

If you say it was a loan, but there is no participant loan program, you still have a PT because by not allowing loans to everyone you've blown the PT exemptions that apply to participant loans.

If it was just taken from the plan assets in general, there is a clear PT (borderline embezzlement?).