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Q-13: How does a deduction (offset) of an account
balance in order to repay a plan loan differ from a
deemed distribution?
A-13: (a) Difference between deemed distribution
and plan loan offset amount.--(1) Loans to a partici-
pant from a qualified employer plan can give rise to
two types of taxable distributions--
(i) A deemed distribution pursuant to section
72(p); and
(ii) A distribution of an offset amount.
(2) As described in Q&A-4 of this section, a
deemed distribution occurs when the requirements of
Q&A-3 of this section are not satisfied, either when
the loan is made or at a later time. A deemed distri-
bution is treated as a distribution to the participant
or beneficiary only for certain tax purposes and is not
a distribution of the accrued benefit. A distribution
of a plan loan offset amount (as defined in � 1.402(c)-
2, Q&A-9(b))[8] occurs when, under the terms governing a
8Sec. 1.402(c)-2, Q&A-9, Income Tax Regs., describes a
distribution of a planned loan offset amount as follows:
Q-9: What is a distribution of a plan loan offset
amount * * *?
* * * * * * *
A-9: (b) Definition of plan loan offset amount.
For purposes of section 402(c), a distribution of a
plan loan offset amount is a distribution that occurs
when, under the plan terms governing a plan loan, the
participant’s accrued benefit is reduced (offset) in
order to repay the loan (including the enforcement of
the plan’s security interest in a participant’s accrued
benefit). A distribution of a plan loan offset amount
can occur in a variety of circumstances, e.g., where
the terms governing a plan loan require that, in the
event of the employee’s termination of employment or
request for a distribution, the loan be repaid immedi-
ately or treated as in default. A distribution of a
plan loan offset amount also occurs when, under the
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