Loans Principal Residence - Documentation Required

[Lou S.]

I'm sure this has been covered but apparently my search skills have failed because I couldn't find anything in the many threads referencing this topic.

We try to strongly discourage principal residence loans but if a client is instant, what documention must a Plan Administrator get to certify that it is really for the acqusition of the participant's principal residence?

Is a statement under penalty of perjury from the particiant acceptable?

An "offer sheet" on the house?

Evidence they have entered escrow?

Do you have to have to get a copy of the title afterwards and evidence they moved in?

Someting in-between the extremes?

Curious what other folks do on this. Didn't see anything in the code or regs that was on point but if I missed it, a citation would be appreciated.

[MWeddell]

There are no regulations explicitly requiring that a trustee retain records that a plan loan with a repayment period greater than 5 years was made to acquire a primary or principal residence. However, because the trustee did not treat the loan as a taxable distribution with withholding tax obligations, Code Section 6001 probably imposes this record retention obligation on plan trustees. (In an analogous situation, the Treasury Dept. has cited Code Section 6001 as requiring the retention of hardship withdrawal documentation.)

What satisfies this requirement in practice is probably a judgment call. I am satisfied if the plan administrator or trustee (or third party recordkeeper on their behalf) retains a copy of a signed purchase agreement for a residence.

[masteff]

I'll agree w/ the signed purchase agreement. An additional document, depending how much of a stickler you want to be, is the "good faith estimate of closing costs" which has a bottom line for money the buyer has to bring to the closing.

[Lou S.]

Thanks, that seems to be a reasonable approach that is not a particularly an undue burden.