defaulted loan upon death

[Guest lap716]

Hello,

I have a participant who has died and they had an outstanding loan balance. I need to know if the defaulted amount is now taxable to the beneficiary and if so does the 10% early w/d penalty apply because he is under 59.5? Thanks!

[mbozek]

Hello,

I have a participant who has died and they had an outstanding loan balance. I need to know if the defaulted amount is now taxable to the beneficiary and if so does the 10% early w/d penalty apply because he is under 59.5? Thanks!

I thought the outstanding loan balance is taxed to the deceased employee's estate and the beneficaries get the benefits. There is no penalty tax because any benefits are paid on account of the employee's death.

[masteff]

I agree.