Taxation Of Distributions

<div class="Section1"><br /> <br /> Life insurance protection purchased under a contributory plan is considered to have been paid first from employer contributions and trust earnings, unless the plan provides otherwise. Thus, the P.S. 58 (currently Table 2001) costs are taxed to the employee unless the plan provides that employee contributions are to be applied to the insurance cost.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> If amounts attributable to deductible employee contributions, including net earnings allocable to them, are used to purchase life insurance, the amount used, not the P.S. 58 (currently Table 2001) cost, is included in the employee&rsquo;s gross income.<a href="#_ftn2" name="_ftnref2">²</a> It is unclear whether such amounts are subject to a premature distribution penalty; the IRS has specifically exempted P.S. 58 (currently Table 2001) costs of life insurance protection included in income from such a penalty ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3969">3969</a>). Although the deduction for any contribution used to purchase life insurance is not disallowed, it is, in effect, offset. Loans under the policy would be considered a distribution, including automatic premium loans on default of payment of a premium.<br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp; Rev. Rul. 68-390, 1968-2 CB 175.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp; IRC &sect;&nbsp;72(o)(3)(B).<br /> <br /> </div></div><br />

<div class="Section1"><br /> <br /> The tax treatment of distributions received at or after retirement depends on the time and manner of distribution.<br /> <br /> If a distribution is rolled over to an IRA or other eligible retirement plan, taxation of the amounts rolled over is deferred until it is distributed in the future ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3996">3996</a>).<br /> <br /> If a lump sum distribution is made, it is subject to the treatment explained in Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3971">3971</a> and, in the case of net unrealized appreciation on employer securities, as explained in Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3972">3972</a>.<br /> <br /> If an employee receives annuity payments, the benefits are taxed as explained in Q <a href="javascript:void(0)" class="accordion-cross-reference" id="613">613</a> and Q <a href="javascript:void(0)" class="accordion-cross-reference" id="618">618</a>. The employee&rsquo;s cost basis, if any, is determined under the rules set forth in Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3973">3973</a>.<br /> <br /> If a distribution is received prior to age 59&frac12;, it may trigger the 10 percent penalty on early or premature distributions unless one of the exceptions applies ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3969">3969</a>).<br /> <br /> </div><br />

<div class="Section1"><br /> <br /> Where individual or group term life insurance is provided under a qualified plan, the cost of the entire amount of protection is taxable to employees. No part of the coverage of group term insurance is exempt under IRC Section&nbsp;79 ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="246">246</a>).<a href="#_ftn1" name="_ftnref1">¹</a> Moreover, the cost of the insurance protection cannot be determined by use of the special group term rates that are applicable to taxing excess group term life insurance purchased directly by an employer.<a href="#_ftn2" name="_ftnref2">²</a> It is not settled whether the taxable amount is the actual premium or the P.S. 58 (now Table 2001) cost.<br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp; IRC &sect;&nbsp;79(b)(3).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp; Treas. Reg. &sect;&sect;&nbsp;1.79-1(a)(3), 1.79-3(d)(3).<br /> <br /> </div></div><br />

<div class="Section1"><br /> <br /> To avoid being taxed as a distribution, a loan made from a plan to a participant or beneficiary must be made pursuant to an enforceable agreement ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3955">3955</a>) that meets certain requirements with respect to the term of the loan ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3956">3956</a>), its repayment ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3957">3957</a>), and the dollar amount loaned ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3958">3958</a>).<a href="#_ftn1" name="_ftnref1">¹</a> Under the SECURE Act, plan loans cannot be repaid via credit card or similar arrangements.<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp; IRC &sect;&nbsp;72(p)(2); Treas. Reg. &sect;&nbsp;1.72(p)-1, A-3(a).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp; IRC &sect;&nbsp;72(p)(2)(D).<br /> <br /> </div></div><br />

<div class="Section1"><br /> <br /> Both direct and indirect loans are considered loans. A participant’s or beneficiary’s assignment, agreement to assign, pledge, or agreement to pledge any portion of his or her interest in the plan is considered to be a loan of that portion. If a participant’s interest in a plan is pledged or assigned as security for a loan, only the amount of the loan, not the amount assigned or pledged, is treated as a loan.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> Any amount received as a loan under a contract purchased under a plan, and any assignment or pledge with respect to such a contract, is treated as a loan under the plan.<a href="#_ftn2" name="_ftnref2">²</a> This would appear to treat a policy loan by a trustee as a loan to the participant. If a premium that is otherwise in default is paid in the form of a loan against the contract, the loan is not considered made to the participant unless the contract has been distributed to the participant.<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> The IRS has stated, in a general information letter, that where plan participants received mortgage loans from a bank that were contingent on the plan making deposits equal to the loan amounts, the loans were indirect plan loans for purposes of IRC Section 72(p).<a href="#_ftn4" name="_ftnref4">⁴</a><br /> <br /> A loan received by a beneficiary is treated as received by the participant if he or she is alive at the time the loan is treated as a distribution.<a href="#_ftn5" name="_ftnref5">⁵</a><br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.  Treas. Reg. § 1.72(p)-1, A-1.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.  Treas. Reg. § 1.72(p)-1, A-1.<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.  General Explanation – TEFRA, p. 295.<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.  <em><em>See</em></em> IRS General Information Letter, 5 Pens. Pl. Guide (CCH) ¶ 17,383J (Aug. 12, 1992).<br /> <br /> <a href="#_ftnref5" name="_ftn5">5</a>.  General Explanation – TEFRA, p. 295.<br /> <br /> </div>

<div class="Section1"><br /> <br /> An employee is not allowed an interest deduction with respect to a loan (otherwise meeting the requirements explained in Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3954">3954</a>) made after 1986 during the period on or after the first day on which the borrower is a key employee ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3931">3931</a>) or in which the loan is secured by elective contributions made to a 401(k) plan or tax sheltered annuity.<a href="#_ftn1" name="_ftnref1">¹</a> Loans from a qualified retirement plan do not qualify as a qualified education loan for which an interest deduction is available.<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp; IRC &sect;&nbsp;72(p)(3).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp; Treas. Reg. &sect;&nbsp;1.221-1(e)(3)(iii).<br /> <br /> </div></div><br />

<div class="Section1"><br /> <br /> Yes. For purposes of the dollar limitation on loans under IRC Section&nbsp;72(p) ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3954">3954</a>), a loan treated as a deemed distribution is considered an outstanding loan until it is repaid.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> Regulations place two conditions on loans made while a deemed distribution loan remains unpaid.<br /> <br /> First, the subsequent loan must satisfy the rules for qualifying plan loans.<br /> <br /> Second, the loan must either be repayable under a payroll withholding arrangement enforceable under applicable law or the participant must provide the plan with adequate collateral for the loan in addition to the participant&rsquo;s accrued benefit.<br /> <br /> The payroll withholding arrangement may be revocable, but should the participant revoke it, the outstanding loan balance is treated as a deemed distribution. If, for any reason, the additional collateral ceases to be in force before the subsequent loan is repaid, the outstanding balance of the subsequent loan is treated as a deemed distribution.<br /> <br /> If these conditions are not satisfied, the entire subsequent loan is treated as a deemed distribution under IRC Section&nbsp;72(p).<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp; Treas. Reg. &sect;&nbsp;1.72(p)-1, A-19(b)(1).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp; Treas. Reg. &sect;&nbsp;1.72(p)-1, A-19.<br /> <br /> </div></div><br />

<div class="Section1"><br /> <br /> An employee normally will have no cost basis if a plan is noncontributory and does not provide life insurance protection.<br /> <br /> If life insurance protection has been provided under a cash value policy, the employee usually will have some cost basis, namely, the aggregate one year term costs that have been taxed to the employee, even though the plan is noncontributory.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> A self-employed person who is an owner-employee cannot include in his or her cost basis the annual one year costs of life insurance protection under Table 2001 or previously under P.S. 58 ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3948">3948</a>), even though these costs were not deductible.<a href="#_ftn2" name="_ftnref2">²</a> No self-employed person, whether or not an owner-employee, can include in cost basis the cost of any health insurance features under the plan.<br /> <br /> A common law employee&rsquo;s cost basis consists of:<br /> <p style="padding-left: 40px;">(1)&nbsp; total nondeductible contributions made by the employee if the plan is contributory and amounts contributed by an S corporation for years beginning before January&nbsp;1, 1984, on behalf of a more-than-5-percent shareholder-employee in excess of the excludable amount;</p><br /> <p style="padding-left: 40px;">(2)&nbsp; the sum of the annual one year term costs of life insurance protection under Table 2001 or previously P.S. 58 ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3948">3948</a>) that have been includable as taxable income if payment is being received under the contract that provided the life insurance protection( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3952">3952</a>);</p><br /> <p style="padding-left: 40px;">(3)&nbsp; any other employer contributions other than excess deferrals ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3760">3760</a>) that already have been taxed to the employee, such as where a nonqualified plan was later qualified;</p><br /> <p style="padding-left: 40px;">(4)&nbsp; certain employer contributions attributable to foreign services performed before 1963; and</p><br /> <p style="padding-left: 40px;">(5)&nbsp; the amount of any loans included in income as taxable distributions ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3953">3953</a>).</p><br /> In addition, although amounts attributable to deductible employee contributions are not part of basis, it would seem they should be included in basis if benefits are received under the contract to the extent that they have been taxable to the employee because they were used to purchase a life insurance contract ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3952">3952</a>). This cost basis must be reduced by any amounts previously distributed to the employee that were excludable from gross income as a return of all or part of the employee&rsquo;s basis.<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> A self-employed person&rsquo;s cost basis consists of (1) the nondeductible 50 percent of contributions made before 1968, after subtracting the cost of incidental benefits, if any, such as waiver of premium and health insurance benefits, and, in the case of an owner-employee, the costs of life insurance protection under Table 2001 or previously P.S. 58 ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3948">3948</a>), (2) contributions on behalf of owner-employees under the three year average rule for determining contributions to level premium insurance and annuity contracts in excess of the deductible limit, in effect for years beginning before 1984, and (3) nondeductible voluntary contributions, if any, to a contributory plan.<br /> <br /> In addition, any amounts taxed to an individual because they were attributable to deductible voluntary employee contributions used to purchase life insurance, if benefits are received under the contract, probably should be included.<br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp; IRC &sect;&nbsp;61(a)(1); Treas. Reg. &sect;&nbsp;1.61-2(a)(1).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp; IRC &sect;&nbsp;72(m)(2); Treas. Reg. &sect;&nbsp;1.72-16(b)(4).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp; IRC &sect;&nbsp;72(f); Treas. Reg. &sect;&sect;&nbsp;1.72-8, 1.72-16(b)(4), 1.402(a)-1(a)(6), 1.403(a)-2. <em><em>See also</em></em> Rev. Rul. 72-149, 1972-1 CB 218.<br /> <br /> </div></div><br />

<div class="Section1"><br /> <br /> If a beneficiary has no cost basis for the payments, each payment will be fully taxable as ordinary income when received. The beneficiary&rsquo;s cost basis generally is the same as the employee&rsquo;s cost basis ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3973">3973</a>). In the case of decedents dying before August&nbsp;21, 1996, the $5,000 death benefit exclusion was included in the beneficiary&rsquo;s cost basis.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> If the beneficiary does have a cost basis, payments are subject to the rules that follow, depending on whether the death benefits come from life insurance proceeds.<br /> <br /> If death benefit payments do not come from life insurance proceeds, the beneficiary is taxed as the employee would have been taxed had the employee lived and received the periodic payments ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3968">3968</a>, Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3969">3969</a>). The beneficiary&rsquo;s cost basis, rather than the employee&rsquo;s cost basis, is used. Depending on the annuity starting date, an exclusion ratio may have to be determined; if so, the beneficiary&rsquo;s cost basis is used as the investment in the contract (for an explanation of the basic annuity rule and its application to various types of payments <em><em>see</em> </em> Q <a href="javascript:void(0)" class="accordion-cross-reference" id="527">527</a> to Q <a href="javascript:void(0)" class="accordion-cross-reference" id="552">552</a>). For annuities with a starting date on or before November&nbsp;19, 1996, if a beneficiary elected the simplified safe harbor method for taxing annuity payments ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="613">613</a>) and increased the investment in the contract by any employee death benefit exclusion allowable, the beneficiary had to attach a signed statement to his or her income tax return stating that the beneficiary was entitled to such exclusion in applying the safe harbor method.<a href="#_ftn2" name="_ftnref2">²</a> After such date, if the annuitant is under age 75, the simplified method is required, rather than optional.<a href="#_ftn3" name="_ftnref3">³</a> When more than one beneficiary is to receive payments under a plan, the cost basis, including the $5,000 exclusion, if available, is apportioned among them according to each beneficiary&rsquo;s share of the total death benefit payments.<br /> <br /> If death benefit payments do come from life insurance proceeds, the proceeds are divided into two parts: the amount at risk, which are proceeds in excess of the cash surrender value immediately before death, and the cash surrender value.<a href="#_ftn4" name="_ftnref4">⁴</a><br /> <br /> The portion of the payments attributable to the amount at risk is taxable under IRC Section&nbsp;101(d) as life insurance proceeds settled under a life income or installment option, as the case may be ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="71">71</a>). The amount at risk generally is prorated over the payment period, whether for a fixed number of years or for life, and the prorated amounts are excludable from the beneficiary&rsquo;s gross income as a return of principal.<br /> <br /> Where payments are for life, the beneficiary&rsquo;s life expectancy generally is taken from IRS unisex annuity tables V and VI.<a href="#_ftn5" name="_ftnref5">⁵</a><br /> <br /> The portion of the payments attributable to the cash surrender value is taxed in the same manner as any other periodic payments from a qualified plan.<br /> <br /> <em>Example:</em> The widow of an employee who died on June&nbsp;1, 2024 elects to receive $25,000 of life insurance proceeds in 10 annual installments of $3,000 each. The cash surrender value of the policy immediately before the insured&rsquo;s death was $11,000. The employee made no contributions to the plan and the aggregate one-year term costs of life insurance protection that were taxed to the employee amounted to $940. The widow must include $1,506 of each $3,000 installment, computed in the following manner.<br /> <table border="1" align="center"><br /> <tbody><br /> <tr><br /> <td width="359">Face amount of insurance contract</td><br /> <td style="text-align: center;" width="148">$25,000</td><br /> </tr><br /> <tr><br /> <td width="359">Cash value immediately before death</td><br /> <td style="text-align: center;" width="148">11,000</td><br /> </tr><br /> <tr><br /> <td width="359">Excludable as life insurance proceeds</td><br /> <td style="text-align: center;" width="148">$14,000</td><br /> </tr><br /> <tr><br /> <td width="359">Portion of each installment attributable to life insurance proceeds (14/25 of $3,000)</td><br /> <td style="text-align: center;" width="148">$ 1,680</td><br /> </tr><br /> <tr><br /> <td width="359">Excludable as return of principal ($14,000 &divide; 10)</td><br /> <td style="text-align: center;" width="148">1,400</td><br /> </tr><br /> <tr><br /> <td width="359">Includable in gross income</td><br /> <td style="text-align: center;" width="148">$ 280</td><br /> </tr><br /> <tr><br /> <td colspan="2" width="507"></td><br /> </tr><br /> <tr><br /> <td style="text-align: center;" colspan="2" width="507">(If the beneficiary is the surviving spouse of an employee who died before October&nbsp;23, 1986, the $280 would be excludable under the $1,000 annual interest exclusion)</td><br /> </tr><br /> <tr><br /> <td colspan="2" width="507"></td><br /> </tr><br /> <tr><br /> <td colspan="2" width="507">Portion of each installment attributable to cash surrender value</td><br /> </tr><br /> <tr><br /> <td width="359">of the contract (11/25 of $3,000)</td><br /> <td style="text-align: center;" width="148">$ 1,320</td><br /> </tr><br /> <tr><br /> <td width="359">Beneficiary&rsquo;s cost basis ($940)</td><br /> <td style="text-align: center;" width="148">$ 940</td><br /> </tr><br /> <tr><br /> <td width="359">Expected return (10 x $1,320)</td><br /> <td style="text-align: center;" width="148">$13,200</td><br /> </tr><br /> <tr><br /> <td width="359">Exclusion ratio ($940/$13,200)</td><br /> <td style="text-align: center;" width="148">7.12%</td><br /> </tr><br /> <tr><br /> <td width="359">Amount excludable each year (7.12% of $1,320)</td><br /> <td style="text-align: center;" width="148">$ 93.98</td><br /> </tr><br /> <tr><br /> <td width="359">Includable in gross income ($1,320 - $93.98)</td><br /> <td style="text-align: center;" width="148">$ 1,226.02</td><br /> </tr><br /> </tbody><br /> </table><br /> The beneficiary may be entitled to an income tax deduction for any estate tax attributable to the decedent&rsquo;s interest in the plan ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3993">3993</a>).<a href="#_ftn6" name="_ftnref6">⁶</a> It would seem that the deduction would be prorated over the beneficiary&rsquo;s life expectancy, in the case of life income payments, or over a fixed period, in the case of installment payments ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="544">544</a>).<br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp; Rev. Rul. 58-153, 1958-1 CB 43.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp; Notice 88-118, 1988-2 CB 450, obsoleted by Notice 98-2, 1998-2 I.R.B. 22 below.<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp; Notice 98-2, 1998-1 C.B. 266.<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.&nbsp; Treas. Reg. &sect;&nbsp;1.72-16(c).<br /> <br /> <a href="#_ftnref5" name="_ftn5">5</a>.&nbsp; Treas. Reg. &sect;&nbsp;1.101-7.<br /> <br /> <a href="#_ftnref6" name="_ftn6">6</a>.&nbsp; IRC &sect;&nbsp;691(c).<br /> <br /> </div></div><br />

<div class="Section1"><br /> <br /> The withholding rules that apply to a distribution depend on whether it constitutes an eligible rollover distribution ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3998">3998</a>). An eligible rollover distribution from a qualified retirement plan is subject to mandatory income tax withholding at the rate of 20 percent unless the distribution is directly rolled over to an eligible retirement plan ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="4000">4000</a>). An employee receiving an eligible rollover distribution may not otherwise elect out of this withholding requirement.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> On the other hand, a recipient may elect out of withholding with respect to distributions that do not qualify as eligible rollover distributions.<a href="#_ftn2" name="_ftnref2">²</a> The amount to be withheld on periodic payments that are not eligible rollover distributions is determined at the rate applicable to wages.<a href="#_ftn3" name="_ftnref3">³</a> Non-periodic payments that are not eligible rollover distributions are subject to income tax withholding at the rate of 10 percent.<a href="#_ftn4" name="_ftnref4">⁴</a><br /> <br /> Withholding applies to amounts paid to a beneficiary of a participant as well as to the participant. Withholding does not apply to amounts that it is reasonable to believe are not includable in income.<br /> <br /> <hr><br /> <br /> <strong>Planning Point:</strong> The IRS has released guidance providing that when a check for a fully taxable distribution from a qualified plan is mailed to a plan participant, but not cashed, it is considered to have been &ldquo;actually distributed&rdquo; from the plan and is taxable to the participant in the year of distribution. The fact that the participant failed to cash the check is irrelevant. Further, the failure to cash the check does not change the plan administrator&rsquo;s withholding obligations with respect to the distribution and does not change the obligation to report the distribution on Form&nbsp;1099-R (assuming the distribution exceeds the applicable reporting threshold). Despite these findings, the IRS was careful to note that it continues to consider the issue of uncashed distribution checks in situations involving missing participants.<a href="#_ftn5" name="_ftnref5">⁵</a><br /> <br /> <hr><br /> <br /> The maximum amount withheld cannot exceed the sum of the money plus the fair market value of property received other than employer securities.<a href="#_ftn6" name="_ftnref6">⁶</a> Thus, a payor will not need to dispose of employer securities to meet the withholding tax liability. Loans treated as distributions (i.e., deemed distributions) continue to be subject to withholding as non-periodic distributions at a rate of 10 percent. The IRS has stated that loans deemed to be distributions are not subject to the 20 percent mandatory withholding requirement because a deemed distribution cannot be an eligible rollover distribution. Where a participant&rsquo;s accrued benefit is reduced or offset to repay a plan loan, such as when employment is terminated, the offset amount may constitute an eligible rollover distribution.<a href="#_ftn7" name="_ftnref7">⁷</a> Withholding is not required on the costs of current life insurance protection taxable to plan participants under Table 2001 or previously P.S. 58 ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3948">3948</a>).<br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp; IRC &sect;&nbsp;3405(c).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp; IRC &sect;&sect;&nbsp;3405(a)(2), 3405(b)(2).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp; IRC &sect;&nbsp;3405(a)(1).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.&nbsp; IRC &sect;&nbsp;3405(b)(1).<br /> <br /> <a href="#_ftnref5" name="_ftn5">5</a>.&nbsp; Rev. Rul. 2019-19.<br /> <br /> <a href="#_ftnref6" name="_ftn6">6</a>.&nbsp; IRC &sect;&nbsp;3405(e)(8).<br /> <br /> <a href="#_ftnref7" name="_ftn7">7</a>.&nbsp; Notice 93-3, 1993-1 CB 293.<br /> <br /> </div></div><br />