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Wallstreet Esq., Tax Attorney
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In reference to a 403b. I made contributions of slightly

Customer Question

In reference to a 403b. I made contributions of slightly over 20K to the account. Stopped making payments in 2007 due to a divorce. In 2008, 2009 and 2010 I took out loans to help cover my living expenses. Those loans show as defaulted (but still active) on my account. In 2010 I was provided a 1099-R for some of the amounts of the loans. Shouldn't the amount of the loans been reduced by the amounts reported on 1099-R
Submitted: 1 year ago.
Category: Tax
Expert:  emc011075 replied 1 year ago.

Hi. My name is ***** ***** I will be happy to help you.

If you received 1099R, your total 403b had been reduced by the 1099R and that's all what matter. Those loans, however will sill show as loans because they were never been repaid and to keep the accounting books in balance they have be recorded as defaulted loans.

Expert:  emc011075 replied 1 year ago.

If you repay those loans (if the plan allows it) you will create what is known as basis (after tax contribution that will be distributed tax free to you) and that's another reason why the loans still appear in your records. It is purely for accounting and bookkeeping purposes. You can call the plan administrator but he will most likely tell you the same thing.

All that is important is that the value of your 403B was reduced by the distribution amount.

Expert:  emc011075 replied 1 year ago.

Here's respond from couple of attorneys from a legal website that address the same issue:

I see you read my previous respond. Do you have any questions? Is there anything else I can help you with today?

Customer: replied 1 year ago.
The plan requires that 125% of loans be held in a cash account, since the loans were not reduced by the value of the distribution the invest choices are limit and the account is underpreforming so it does make a difference on how the funds are accounted for. As it is I'm being penalized twice on the amount of the funds on the 1099, first by paying the tax on the withdrawal and second but have the an equal amount restircted.
Expert:  emc011075 replied 1 year ago.

That's something you have to clear with the plan administrator if that their rules. You could also look into other options like rollover into IRA (individual retirement account) to have more control over your investment.

Expert:  emc011075 replied 1 year ago.

If you are still with the current employer, the plan may allow you to do so. Again, you have to check their rules. As long as the company selected plan comply with government laws and rules, the plan administrator can set their own rules and restrictions. If the plan doesn't allow the rollover, you may consider to reduce your contributions to 403b and maximize your IRA as well. If you leave the employment or reach 59 1/2 the plan may not restrict your access to your funds anymore.

I see you offline now. So if this answered your question, please take a moment to rate my response so that I may receive credit for assisting you today. However, if you need clarification, or want to discuss this issue further, let me know. Thank you.