Reporting Loans on Schedule I

[Guest MCarey1]

Do I include the o/s loan balance in Line 2e when a participant terminates, takes a distribution and does not pay the loan balance off?

Also, is interest paid on participant loans included as part of the gains on 2c?

Thanks

[Archimage]

That depends on if you have offset the loan or not. In my experience most firms will offset the loan at the time the distribution is taken.

[Guest MCarey1]

Sorry if I sound stupid. The o/s loan balance was part of the beginning balance, cash distribution was done mid year and o/s loan balance was treated as a defaulted loan at distribution with taxes being withheld.

Should I still account for it when I report the payouts from the plan on the 5500.

I have not adjusted the total asset balance in the plan to show that the balance was not repaid. This participants distrution amount only reflects what he received at distribution, his current balance in the plan.

I am real confused.

[Archimage]

You should review your loan policy/plan document to be sure but I think you should offset the loan and not include this on the sch I.

[pmacduff]

I think you have to include it on the Schedule I to balance. We report the default with the regular distributions when it is reported and taxed as you suggest. The beginning participant loan balances include that loan, so you somehow have to account for removing the balance from the Plan.

[Guest JimD]

When you did the distribution and withheld taxes you should have included the loan balance on the 1099. Review that if you can. I agree with the response to include the loan balance as a distribution on line 2e. I would include interest paid on line 2c.