Tax reporting of deceased participant loan

[Guest halka]

Participant X died w/ $1,000 plan loan outstanding. X's account ($10,000 including the $1,000 loan) distributes equally to two beneficiaries. Should the 1099R to each bene be (A) for $5,000 or (B) for $4,500 w/ a third 1099 for $1,000 going to deceased taxpayer/estate?? Thanks

[Fredman]

You are on the right track...

The 1099s to the benes should only be for the the part of the distribution that they receive ($4500 in your example). The loan should be taxed and 1099'd to the estate of the decedent using the estate's tax id number.

[This message has been edited by Fredman (edited 04-28-99).]

[Guest kurt johansen]

can you point me to the Code, Reg. or rulings that support your analysis of the taxation of an outstanding plan loan upon the death of the participant. I have done some research on the issue and have come up empty.

Kurt

[Guest halka]

At the same time as Fredman was kindly responding, I ran across the following article: “Plan Administration of Tax Treatment of Loans at a Participant’s Death” by Elinor Merl in the Winter 1996 issue of Journal of Pension Benefits. It cites Reg 1.401(a)-20 Q&A 26 as guidance. I recommend the article.

[Guest kurt johansen]

the Merlinor article is indeed very good. Just a heads up for anyone else that is interested, the authority is 1.401(a)-20 Q&A 24(d).

Thanks for pointing me to the article,

Kurt

[Guest TaxedToDeath]

At the same time as Fredman was kindly responding, I ran across the following article: “Plan Administration of Tax Treatment of Loans at a Participant’s Death” by Elinor Merl in the Winter 1996 issue of Journal of Pension Benefits. It cites Reg 1.401(a)-20 Q&A 26 as guidance. I recommend the article.

I am actually looking for a copy of this article but most online archives don't seem to extend further back than 2000. Anyone able to direct me to a copy?

Thanks!

[mbozek]

At the same time as Fredman was kindly responding, I ran across the following article: “Plan Administration of Tax Treatment of Loans at a Participant’s Death” by Elinor Merl in the Winter 1996 issue of Journal of Pension Benefits. It cites Reg 1.401(a)-20 Q&A 26 as guidance. I recommend the article.

I am actually looking for a copy of this article but most online archives don't seem to extend further back than 2000. Anyone able to direct me to a copy?

Thanks!

see link to recent discussion of taxation of plan loans of deceased employee.

http://benefitslink.com/boards/index.php?showtopic=51842

[Guest TaxedToDeath]

see link to recent discussion of taxation of plan loans of deceased employee.

http://benefitslink.com/boards/index.php?showtopic=51842

Thanks, mbozek, that discussion is helpful.

However, I really am looking for a copy of that article by Elinor Merl. If anyone knows where I can find it, please let me know.

[mbozek]

see link to recent discussion of taxation of plan loans of deceased employee.

http://benefitslink.com/boards/index.php?showtopic=51842

Thanks, mbozek, that discussion is helpful.

However, I really am looking for a copy of that article by Elinor Merl. If anyone knows where I can find it, please let me know.

Why? Its 15 years old.

[masteff]

However, I really am looking for a copy of that article by Elinor Merl. If anyone knows where I can find it, please let me know.

The most expedient way is to contact the Journal of Pension Benefits publisher and ask for a back issue or reprint. The article you want was in a limited distribution print journal from the mid-90's so you're going to have to go old school.

[ETA Consulting LLC]

the Merlinor article is indeed very good. Just a heads up for anyone else that is interested, the authority is 1.401(a)-20 Q&A 24(d).

Thanks for pointing me to the article,

Kurt

This is still a stretch, as this section does not discuss taxability. Let's assume a DB plan issues a loan to a participant in the amount of $20,000. The loan is funded from a pool of money and is secured by the participant's accrued benefit in the plan. The participant dies. All this section is saying is that the accrued benefit payable to the spouse will first go toward paying off the outstanding loan in the plan.

The stretch is whether for tax purposes, this becomes an amount taxable to the estate; or does it become a part of the spouses inherited benefit being used to satisfy the loan obligation under the plan (then allowing the spouse to fork over funds to roll such amount over). The section, as written, only ensured the plan's loan was paid by the participant's accrued benefit prior to any distributions to the beneficiary.

If you inherit a company that has assets plus outstanding debt, you can either disclaim the entire company or use the assets you inherit to pay off the debt. Your decision on whether or not to disclaim should be based on the net value of the amount being inherited. How is this different? There is simply no clear authority to issue a 1099-R to the estate.

Good Luck!