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If The Plan Participant Fails To Make A Loan Payment Either On The Date That It Is Due, Or Within An Allowed Grace Period, The Loan From The Qualified Plan No Longer Satisfies Any Of The Statutory Exceptions, Which Will Result In A Taxable Distribution.
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For Example, A Nonprincipal Residence Loan For $5,000 With A 6year Repayment Period Is Made.
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After An Audit, The Irs Determined The Default Was A Taxable Distribution In The Year The Plan’s Grace Period For Repayment Expired.
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