Guest Stella P. Posted May 14, 2008 Posted May 14, 2008 We have a client who has an owner only 401 (k) plan. The owner just returned his 2007 plan information (calendar plan)and is showing the he took a $70,000 loan. This is $20,000 over the legal limit. What needs to happen next? Can he repay the $20,000 back with interest calculated that would have been earned since the date of withdrawal or is this a taxable event (1099-R and amended personal return) plus 10% penalty?
J Simmons Posted May 14, 2008 Posted May 14, 2008 The ENTIRE loan is a prohibited transaction and needs to be corrected by returning the entire $70,000 plus interest and a Form 5330 filed and penalties paid. John Simmons johnsimmonslaw@gmail.com Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.
Tom Poje Posted May 14, 2008 Posted May 14, 2008 this could be corrected under the self correction program (VCP only) see page 29 of rev proc 2006-27 (its a loan in excess of 72(p)(2)(A))
Guest Stella P. Posted May 14, 2008 Posted May 14, 2008 Why is the entire loan considered to be a prohibited transaction?
BG5150 Posted May 14, 2008 Posted May 14, 2008 Why is the entire loan considered to be a prohibited transaction? Because the loan itself was one transaction? (just my thought) QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left.
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