IRS Takes Aim at Participant Loans

A key IRA audit issue for retirement plans: participant loan documentation.  Generally, plan loans are tax-free if the total doesn’t exceed the smaller of $50,000 or 50% of the borrower’s account balance.  And most loans must be paid back in full within five years, but loans used to purchase or construct a principal residence can have a longer repayment period.  Among the documents that plans must retain are the loan application, an executed plan note and the repayment history, IRS says.  To get a plan loan to help buy a main house, the borrower must submit paperwork evidencing the planned purchase before the loan is ok’s.  IRS is looking at this closely.

From: The Kiplinger Tax Letter, May 2015


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