3 loans, so one has to go

[Guest Iwonder]

The Plan provides for a max. of two loans (one per year).

Ppt wrote a bad check to pay off a first loan. Ppt had an existing second loan. Ppt was given a third loan after the first loan was "paid off". Ppt cashed the check for the third loan before the plan administrator realized he had been given a bad check for the first loan payoff.

First loan was re-established. Now ppt has three loans in violation of the plan. One loan has to go.

Is the first loan a deemed dist'n? Should the third loan be a deemed dist'n because it should not have been established?

Ppt states that due to problems with the IRS freezing his accounts, he is unable to payoff any loan. (Could loan 3 be a hardship loan?)

Guidance Please!

[WDIK]

Does the plan allow for hardship distributions? If so, does it allow for retroactive hardship distributions?

Timing will be an issue with respect to the occurence of a deemed distributions. When did or will the failure to make payments in accordance with the terms of the loan(s) happen?

The entire discussion may be pointless anyway if none of the loans are going to be repaid.

[Guest Iwonder]

Thank you for your response.

With regard to your questions - The plan does provide for hardship distributions, but the third loan was not taken as a hardship loan and the plan does not provide for retroactive hardship distributions.

Failure to make payments has not occurred yet. The problem is that there are three loans outstanding when the plan document provides for just two. All three may very well be repaid but the concern is that this is in violation of the plan's provisions.

So we have a problem.

Any suggestions on how to fix this? Thank you.

[rcline46]

Follow the rules for 'combination' loans under the recent regulations for loan 3 and recast it, hopefully with this you can 'pay off' loan 1 or 2.