loans and basis
If a participant takes out a 50,000 loan from qrp he will get the loan tax free.
He will pay it back over next 60 months with after tax dollars and also pay back imputed interest.
Question: Is the principal paid back now considered after tax money?
How about then interest.?
Permalink Submitted by Alan Spross on Fri, 2008-12-26 04:23
Chuck, Merry Christmas.
The principal paid back is considered pre tax money in the plan. It was pre tax when the loan was taken and is returned with the same status as it came out. This does not make these funds subject to double taxes when they are finally distributed in retirement. They are only actually taxed upon their final distribution.
Interest is different in that it is first paid in out of after tax money, but is considered pre tax once in the plan. Therefore, the interest IS ultimately double taxed upon distribution.
In the end, the interest is double taxed, but not the principal.
There is also no deduction for use of the loan money, no matter what it is used for and even if the plan were to record a lien on your home to secure repayment, if the employee thought that would produce a mortgage interest deduction. Effectively, the loan is considered a non deductible consumer loan under the tax code.
Permalink Submitted by charles lore on Fri, 2008-12-26 16:54
Alan , Merry Christmas and thank for being so generous with your knowledge. I started using this forum about 6 months ago and have read all your postings. It’s obvious you have a lot of experince in this area and what I’ve learned from you and others would have taken years otherwise.
Looking forward to absorbing and hopefully contributing as we march on into 2009.
Chuck
Permalink Submitted by Janine Janine on Fri, 2008-12-26 17:15
[quote=”[email protected]“]Alan , Merry Christmas and thank for being so generous with your knowledge. I started using this forum about 6 months ago and have read all your postings. It’s obvious you have a lot of experince in this area and what I’ve learned from you and others would have taken years otherwise.
Looking forward to absorbing and hopefully contributing as we march on into 2009.
Chuck[/quote]
I agree with all of the above. Thank you so very much, Alan, for sharing your expertise and knowledge with us. I have been checking out this forum much, much longer than 6 months. I have gleaned a great deal of pertinent information and clarification on which my accountant was not up-to-date!
Thank you again!
Janine
Permalink Submitted by BARTON MASSEY on Sat, 2008-12-27 16:26
Re Chuck’s and Janine’s recent expressions of appreciation to Alan, I’d also like to add my grateful thanks to Alan for so generously sharing his expertise so frequently and promptly with all of us. I’ve followed this forum for many years, and the several times I’ve submitted queries, it has been Alan who has responded first with his usual clear and authoritative explanations. Best wishes to all in 2009. Bart
Permalink Submitted by fairira on Sat, 2008-12-27 18:55
Alan,
I too want to express my appreciation for the great number of helpful and informative answers you’ve provided and my respect for how knowledgeable and thoughtful you are.
Thank you so much.