Jim Chad Posted January 18, 2013 Posted January 18, 2013 Is some of the interest on deemed loan taxable when account is all paid out? I think interest is still accumulated on the loan after it is deemed. Am I right on this? If a loan plus interest was $20,000 when deemed, then Taxes were paid on $20,000. If the loan "grows" to $25,000 by the time the Participant retires and the account is paid out, will taxes have to be paid on the other $5,000?
BG5150 Posted January 18, 2013 Posted January 18, 2013 No. The additional interest that accrues is phantom interest. It would have to be paid back if the participant wants to repay the loan in order to get another one. When the participant has a distributable event, the loan is offset, ceases to accrue interest and no longer shows on the 5500. QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left.
Jim Chad Posted January 18, 2013 Author Posted January 18, 2013 Thanks, BG5150 You answered one of my questions. I would like to be sure I understand the other question. Will taxes ever be paid on the phantom interest?
BG5150 Posted January 18, 2013 Posted January 18, 2013 No. QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left.
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