Paying off a deemed loan (while still employed)

[Brian Gallagher]

Fact pattern:

Participant still working with company (no termination of employment), but for some reason loan hadn't been paid since 2002. It was deemed a distribution.

Participant wants to take a new loan now. I understand that she must pay back the first loan before taking another one.

My question is: Does the first loan have to be paid off all at once? Or can periodic payments come in?

Can you point me to the regs that say either way?

As usual, thanks in advance.

[Brian Gallagher]

It looks to me like she can...it looks acceptable in Q-A 21 in the final loan regs.

Any thoughts?

[jevd]

I agree. It will create a basis that needs to be tracked by the TPA.

[Guest hyper]

The example given in Q&A 21 of 1.72(p)-1 permits installments to repay the loan.

Just as a side note: The deemed distributed loan does not have to be repaid before a new loan can be obtained, unless that is a restriction of the Plan. See Q&A 19 of 1.72(p)-1 for discussion on loans issued subsequent to a loan that has been deemed distributed.

[Tom Poje]

from what I recall, just because the loan has been treated as a deemed distribution, that obligation to repay it still exists, and therefore, the old loan must be taken into consideration when determining how much the person borrows on any additional loan. (treated as if it still exists)

[Brian Gallagher]

This plan allows for only 1 loan outstanding, so this loan needs to be paid off first. (Since it was deemed and not offset, it's still an outstanding loan).