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Withdrew 7500 from 403b. Paid penalty and taxes this year.

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Now employer says she needs...
Withdrew 7500 from 403b. Paid penalty and taxes this year. Now employer says she needs to speak to my husband about remedy. I’m spoke with TransAmerica and they said when I withdrew I have to pay fees if I defaulted. What can employers want as remedy
Submitted: 4 months ago.Category: Tax
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3/15/2018
Tax Professional: Stephen G., Sr Income Tax Expert replied 4 months ago
Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 7,469
Experience: Extensive Experience with Tax, Financial & Estate Issues
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Hello, my name is***** goal is to give you a complete & accurate answer. I am working on your request now & I will respond as soon as possible.

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Customer reply replied 4 months ago
Thank you for responding. This is not regarding taxes. It is regarding the defaulted loans, the impact on the Holton-Arms 403b plan, and the remedy that must be put in place. The remedy will impact Kenny and I wanted to discuss it with him to give him a head's up.This is what was sent to me. My husband plans to go speak with her later today. I mean now is she going to make us pay that back and it’s a year later. What are we going to have to pay the year payment in a lump sum. I mean I am very upset that if this is case. I would of taken a medical waiver as my husband was in a horrible accident.
Tax Professional: Stephen G., Sr Income Tax Expert replied 4 months ago

I'm not sure what specifically they are referring to when they use the term "default" as that would normally be in the context of a loan.

However, absent that, they may be referring to a "default" if your plan was subject to the ERISA Spousal Consent rules, which basically require your Spouse to agree to any withdrawals or loans from your 403(b) plan.

In regards ***** ***** subsequent comments, I didn't realize that this was a defaulted loan issue verses a withdrawal. You should not have to pay back anything as it sounds like you've already included the related income & penalties in your income tax return.

Now, there is no reason why you should not be given the details behind what they want to speak with your husband about specifically, there should not be any problem with you attending the meeting along with your husband if you should want to do so.

I'll give you a link to an article that explains some of the unique issues related to the 403(b) plans, but keep in mind that these issues are highly technical in nature and relate to whether the specific provisions are included in your particular plan or not. Normally, I would summarize the article for you, but without the actual plan (ie. your Plan) available, I have no way of telling what may or may not apply to your situation.

https://www.businessofbenefits.com/2017/12/articles/403b/spousal-consentjs-issues-under-403b-plans-may-trigger-document-conflicts/

Let me know if you have any follow-up questions.

Thanks very much,

Steve G.

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Customer reply replied 4 months ago
Well, I guess we just wait and see. I think they are making him repay the loan. Pretty basic answer without anyout any answers. Thanks anyway.
Tax Professional: Stephen G., Sr Income Tax Expert replied 4 months ago

Was this his plan or your plan?

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Customer reply replied 4 months ago
It’s his plan. I was curious if a plan can make you pay back a default even though you paid taxes and penalty as TransAmerica sent us a 1099 this year. And why it’s taken them a year to get a remedy. I mean can they say you have 30 days to pay back the 7500. I’m just trying to have him a little prepared for what might be said. He is almost 59 now as well.
Tax Professional: Stephen G., Sr Income Tax Expert replied 4 months ago

OK, in your original question, you indicated that "when I withdrew" so that's the direction I went to respond to you. If it's your Husband's plan, then it would be you that would have to agree to any Spousal Provisions, not him.

If you have reported the income and penalties in accordance with the 1099 your husband received, there can be no payback requirement.

Were there other loans in default, beyond what was reported on the 1099?

Once he reaches age 59 1/2 (verses 59), there would be no tax penalties involved for any defaults for any period beyond when he reached age 59 1/2.

Unfortunately, without the actual Plan, it's only possible to give you the range of issues available. These 403(b) plans are not all the same by any means, but they all would qualify under Internal Revenue Code 403(b); thus the name.

If you read the article I provided, you can see the complications involved depending upon the specifics of the Plan as well as the circumstances surrounding any loans or withdrawals.

There should never be a circumstance where you would be required to payback any defaulted loan where the income & penalties (if applicable) is reported to your husband on a 1099, no matter what any Plan Provisions are in effect.

Let me know if you have any additional follow-up questions.

Please remember to rate my response as that is the only way that the SITE will credit me for assisting you today.

Thanks very much,

Steve G.

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