PST Loan Pay-off with Lump Sum Distribution
L1: PST Loan Pay-off with Lump Sum DistributionAge 55. I am submitting paperwork to take a lump sum distribution from my Profit Sharing Plan. A portion of this will be in the form of an IRA transfer and a portion of stock in-kind (NUA).
I have an outstanding loan on my PST. I am being told that I can either pay the loan by using outside funds and giving them a check or state on my paperwork that I am not repaying my loan and it will be included as part of a taxable distribution with 20% withholding.
I”m okay with paying the federal tax on this loan as a distribution, however, how does that effect my taking a “distribution” pre 59 1/2?
My thoughts – Since it is coming from the PST and is in conjuntion with a lump sum distribution, it is considered more of an adhoc distribution and therefore not subject to pre 59 1/2 distribution rules? Am I correct?
Thank you!2008-03-12 12:15, By: Retiring – Yippee, IP: [188.8.131.52]
L2: PST Loan Pay-off with Lump Sum DistributionHello:
An unpaid loan at ime of distribution is considered a “deemed distribution” and is further treated just like any other distribution which is subjectto federal and state income tax. Depending on when you actually separated from service from your employer you may qualify for the Age 55 exception to the 10%. Otherwise,you will also owe the 10% surtax on the amount of the deemed distribution.
2008-03-12 14:20, By: TheBadger, IP: [184.108.40.206]
L2: PST Loan Pay-off with Lump Sum DistributionThank you for your response. My official retirement date was 2/15. Does that provide me the “age 55 exception”.2008-03-12 14:28, By: Retiring Yippee, IP: [220.127.116.11]
L2: PST Loan Pay-off with Lump Sum DistributionYou will qualify for the age 55 separation from service exception, therefore for taxable distributions including the cost basis on your NUA shares, there will be no early withdrawal penalty. That said, I have seen different guidelines applied to the deemed distribution of a loan. While the deemed distribution is declared after 55, you actually received the money prior to 55, and therefore the plan may code it as an early distribution subject to penalty. You should check this matter out with the plan administrator.2008-03-12 14:30, By: Alan S., IP: [18.104.22.168]
L2: PST Loan Pay-off with Lump Sum DistributionThe age 55 separation exception includes separation in the year you turn 55. So as long as you will be 55 prior to 1/1/09, you qualify. However, see prior post for possible exception with the deemed distribution portion.2008-03-12 14:32, By: Alan S., IP: [22.214.171.124]