20% WH on Loans

[Guest PCI]

My Participant has 10k as a balance and a $2300.00 loan. She is also over age 59 1/2.

She is terminated and wants to roll over the 10k.

Does $460.00 of tax need to be wh from the

10k to be paid on the loan, or is this not required, either just because it is not required or that she is over age 59 1/2.

[LCARUSI]

I assume you mean the participant has a total balance of $12,300.

If the participant elects not to repay the loan, he/she can elect a direct rollover for the full amount of $10,000. There is no requirement to withhold, regardless of age. (There is no cash being distributed to withhold from.)

However, the participant will be subject to taxation on the distribution of the loan. The taxable amount will be $2300. (Unless he/she comes up with $2300 from his/her own funds and contributes it to an IRA within the 60 day requirement.)

[This message has been edited by LCARUSI (edited 08-31-1999).]

[Guest]

for more info, see tres Reg 31.3405©-1, A-11

withholding is the lesser of 20% of the total taxable distribution or the non-loan-offset portion of the taxable distribution. The taxable distribution does not include any direct rollover, so there is no withholding since the person received no cash.