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Loan Repayments Can Be Manufactured Up Without Getting Taxed

Loan Repayments Can Be Manufactured Up Without Getting Taxed

An interior income provider (IRS) Chief Counsel Advice memo issued to help counsel in another of the agency’s offices that are regional

The memo, dated August 30, provides two pictures sexactly howing how installment that is missed could be constructed without penalty. One makes use of a later, larger re payment in addition to other employs an alternative loan. Both circumstances occur in the plan’s that is hypothetical loan remedy duration.

Two Examples Provided

Both examples are derived from the reality that: (1) the 401(k) plan at issue allows plan loans and permits for a remedy period; and (2) that on January 1, 2018, the participant obtains an idea loan that will not go beyond the permitted restriction on such loans, just isn’t a mortgage, has a lawfully enforceable agreement, and it is repayable in equal installments by the end of every month associated with the agreement, that will be amortized over 5 years.

In this situation, the plan’s cure duration allows a participant make up a missed installment repayment by the final time regarding the calendar quarter following the calendar quarter where the installment ended up being due.

The amount of the loan will be treated as having been received by the participant as a distribution from the plan as background, the federal tax code’s Section 72(p), which governs plan loans, provides that if a participant receives (directly or indirectly) a loan from a qualified employer retirement plan.