Taxation on distribution including loan offset, after tax contributions, and ee deferrals

[FundeK]

How would you withhold (20% mandatory tax) for the the following scenario?

Total account balance = $38,000

After tax basis = $3,000

Loan Balance = $5,000 (to be offset at distribution).

The participant chooses to receive his after tax basis in a check payable to him, offset the loan, and rollover the remainder.

Would you send the participant a check for $2000 (basis - $1,000 tax liablity), or send him a check for the $3,000 (basis) and withhold the tax liability from the rollover portion?

What if we replace the $5,000 loan offset with a distribution of employer securities to the participant. Does that change anything?

Thanks!

[four01kman]

In the first instance, you would give him a check for $2,000 -- $3,000 after-tax contributions minus $1,000 for the tax withholding on the loan offset. If you paid the withholding tax from the "rollover", that would be included in the taxable distribution.

[FundeK]

I am reading in Sal Tripodi's ERISA outline book that.....

The amount of withholding required is the lesser of

a)20% of the total taxable distribution ($1,000 in this case)

or

b)the non-loan-offset portion of the taxable distribution ($0 we do not

have a taxable distribution other than the loan offset int his case)

Does this mean that as the withholding agent in this scenario, you do not have to withhold 20%?

Thanks!