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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7349
Experience:  15years with H & R Block. Divisional leader, Instructor
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When taking a loan from the New york state teachers retirement

Resolved Question:

When taking a loan from the New york state teachers retirement sytem why do I have to disclose any loan I have on my 403b account. This increases the amount of tax I have to pay and I dont remember having to disclose this in the past. This is what the website states "Internal Revenue Code reporting mandates the disclosure of any existing loan with a deferred compensation (457) or a tax sheltered annuity (403(b)) plan. You will need to have this information available in order to process a loan request"
Submitted: 1 year ago.
Category: Tax
Expert:  Robin D. replied 1 year ago.

Robin D :

Hello and thank you for using Just Answer,
They must know if you already have loans because there is a limit as to how much you can borrow.

Robin D :

In order to allow temporary access to your 403(b) account, the Internal Revenue Service (IRS) permits loans. There are, however, some limits on the amount. Generally, the loan cannot exceed the smaller of: $50,000, or one-half of your account balance (though if your account balance is less than $20,000 you may borrow up to $10,000 if you have that much in your account).


In applying these limits, all of your 403(b) accounts must be combined and aggregrated with any loans from other retirement plans you might have, such as a 401(k).

Robin D :

Were you able to see the answer?

Customer:

I dont recall having to do this 2 years ago when taking a loan. Is this a new rule ?

Robin D :

No, it is not new.

Customer:

So in my case a 10,000 dollar loan will have show that I have to pay taxes on a 23000 distrubution

Robin D :

No, if you still are paying off a loan and have not defaulted, the loan is not taxable to you.

Customer:

any way around this ?

Robin D :

When you take a loan on your retirement acct you do not pay tax on the amount unless you default

Customer:

Im confused. The new TRS loan when combined with my current 403b loan shows tax consequences of 23000 for a new 10,000 loan

Robin D :

If you defaulted on the loan then you would pay tax on the amount that has not been paid back. I am not sure what you mean by tax consequences.

Robin D :

A hadrship withdrawal does mean you pay tax on the distribution

Robin D :

but a loan is paid back and as I said there is no taxation unless the loan is not paid back timely

Customer:

This is what the NYSTRS website says..


"If you have an existing loan with a deferred compensation (457) or tax sheltered annuity (403(b)) plan, you must disclose this information or this loan will be rejected. The Internal Revenue Code requires us to consider these loan balances when we calculate the taxability of a loan from our System. Note that this may result in significant tax consequences on your loan from this System.


Do you have a loan from a deferred compensation (457) or tax sheltered annuity (403(b)) plan? (This does not include your current loan with NYSTRS.)


Do not select "Yes" if the loan has been defaulted. If you are unsure of the status of your loan from your 457 or 403(b) plan, refer to your loan statement or contact the financial institution from which you borrowed."

Robin D :

This usually happens when someone leaves their position

Robin D :

defaulted that means it would be taxable but only the portion not paid back

Customer:

no

Robin D :

You mean "no" you have not defaulted?

Customer:

Not the case...they want to know balance of other loans.no default.still employed

Robin D :

Ok

Robin D :

They want to know so you are not given a loan higher than they are allowed to give by IRS law

Robin D :

The half of your account balance as I stated before

Robin D :

They will not tax you on the loan

Robin D :

But you can not borrow more than allowed

Customer:

I dont believe that is the correct answer

Robin D :

I would be happy to give you the IRS page

Robin D :

And the code

Customer:

Im going to paste where their website states there will be severe tax consequences when combining the 403b loan with the new trs loan.......your saying I wont be taxed ..right?

Customer:

Due to IRS regulations, you could face severe tax consequences
if you have an outstanding loan and are considering borrowing additional funds.
This change has prompted NYSTRS to ensure members are fully informed before a
loan is issued. A taxable loan will not be issued until you acknowledge a
statement indicating the taxable amount along with your withholding election

Robin D :

IRS regulations require that the amount of a combined loan be added to the remaining balance of the original loan to test for taxable distributions. Therefore, members with an unpaid balance on a current NYSTRS loan who wish to borrow additional funds are cautioned that federal tax rules impose severe tax consequences on a new, combined loan.

This is what I was explaining to you before. They are not allowed to let you borrow more than the IRS law allopws. SO you would not be denied access to your money though, any excess would not be a loan, it would be a distribution.

Robin D :

Loans are not taxed

Robin D :

Distributions and defaulted loans are (as distributions).

Robin D :

If you have already borrowed your limit

Robin D :

then a loan is not what you will get

Robin D :

You will get a distribution.

Customer:

ok..that makes sense

Robin D :

Good

Robin D :

SO you will have to decide if you want to pursue this

Robin D :

based on possible taxation

Customer:

wish there was some way around that to pay my taxes......lol..thanks

Robin D :

I understand

Robin D :

Your positive rating is always thanks enough.

If you could also participate in the very short survey that Just Answer will send you by e-mail I would appreciate that very much.
I really enjoyed working with you – please feel free to request me again when you come back to ask another question.

Robin D :

Did you need more assistance ?

Customer:

No.thanx

Robin D :

Thank you again and best wishes

Robin D :

Can you see the rating options?

Robin D :

Just curious

Robin D :

.....lol..thanks

Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7349
Experience: 15years with H & R Block. Divisional leader, Instructor
Robin D. and 2 other Tax Specialists are ready to help you
Expert:  Robin D. replied 1 year ago.
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