Loan Default

[Guest johnberube]

Here's the situation: Employee initiated loan in Oct. First payment was due in Dec. Due to an administrative error on the Plan Sponsor part the loan deductions didn't start until March. Warning letter went out in Feb. The loan defaulted 3/20. Employee paid delinquent amount thru 3/30. According to the rule I thought the loan defaulted the last day of the calendar quarter that the loan was delinquent? Wouldn't that be June 30th? Furthermore, even if it defaulted in March wouldn't it default March 31st and not March 20th. Please advise.

[ACox]

The loan goes into default when the first payment is missed. The cure period for the loan default is 90 days following the end of the quarter in which the default occurred. Based on the facts it sounds like the default was cured within the cure period and the loan should not be considered defaulted.

[QDROphile]

Distinguish between "in default" and "taxable." What happens because of a missed payment is a matter of contract so you look to plan terms and loan doucments. Whether or not the amount is taxable can be influenced by the contract terms, but is governed by the regulations.