Grace Period for 5-Year Repayment Period

Editor's Note: This is the fourth installment in a series concerning correcting plan loan failures. 
 

Q. Is there any grace period for the 5-year amortization schedule (e.g., if the 5-year repayment period is exceeded only by a month or two)?
 

A. No. Neither the Internal Revenue Code nor the Treasury regulations implementing it provide an extension of the 5-year repayment period (other than for military leaves of absence). In other words, if the loan exceeds the 5-year repayment period by one or two months, the loan violates the requirement and the loan is a deemed distribution. However, in practice, an IRS agent may choose not to enforce the rule strictly.
 

Editor’s Note: This content is taken from “Loans: Correcting Taxation, Qualification and Fiduciary Failures,” an April 15, 2020 ASPPA Webinar presented by Stephen W. Forbes J.D., LL.M. of Forbes Retirement Plan Consulting.