403b loan

[Mike or Penny Novack]

>      
>
>
> You can avoid this accounting altogether. I think if you color inside 
> the lines, these loans effectively have zero tax consequences - you 
> aren't taxed on the loan proceeds, and you get no tax benefit from 
> repayment of principal or interest.  So if you also don't care about 
> GAAP consequences (i.e. you're not especially interested in tracking 
> the investment performance of the loan interest) then you can 
> eliminate the loan upon consolidation.  Just wipe the whole thing off 
> your balance sheet and P/L.  Abracadabra.

THAT is something I would not be at all so sure of without a careful 
reading of the 403(b) rules. I would in fact be VERY surprised were this 
the case but perhaps some information is being left out. For example, 
the 403(b) might allow after tax contributions and perhaps THAT MUCH 
might be withdrawn early without any tax consequences. The whole point 
of "loans" being allowed is that would be money you can take out without 
any immediate tax consequences and including the right to put it back in 
(pay back the loan).

IF 403(b) contributions are after tax and that is what can be taken out 
(no tax consequences or other penalties) then you 403(b) fund accounting 
had best keep track of how much "contributions" and how much "earnings". 
Like I said, I am NOT a tax advisor and know nothing about the 403(b) 
rules.


>
>     In the end I decided to treat the 403b loan as an asset and a
>     subaccount of the 403b fund account.
>
>
> If you do it this way, make sure to also create a 403b loan liability 
> account for you personally.  The loan is a liability for you, and an 
> asset for the trust.
>  

I think THIS is just confusion of concepts. Where in the chart of 
accounts an account appears isn't what really determines what type of 
account so much as whether the normal balance of the account is on the 
debit or the credit side of the ledger. The "403b loan balance" IS a 
liability account (normal balance on the credit side) whether placed 
under "Liabilities" or as a contra account child of the 403(b) account 
under "Assets". The reason for putting it there (rather than in the more 
normal place) would be to see at a glance the net balance of the 403(b). 
Double entry bookkeeping allows only one basic view as defined by the 
chart of accounts; for other views you need to take the data and do some 
math*. We select the view that we use the most and which. There may be 
some slight confusion thinking of assets as worth (rather than equity as 
worth, assets - liabilities).

Go back to what I was saying about what the rules might be. If this is a 
case of "after tax contributions may be withdrawn, no tax consequences 
or penalties, but may be replaced" (which is why called a "loan") then I 
too might well choose to place the loan account as a contra account (of 
the "after tax contributions" child since I need to make sure not taking 
out more than that). But I will repeat, I do NOT know what the 403b 
rules might be.

Michael D Novack

* I will give an example. I keep books for 501(c)3's. Now reporting 
requirements differ depending on reporting to whom. Thus the boards want 
to see net results for each event or net costs for each project of the 
organization. The IRS wants "postage" expense as a line item. So for one 
view, postage expense for each event or project is separate and grouped 
with the other expenses of the event/project BUT I'm going to have to 
total those up to fill in the line on the 990-EZ. You need to think of 
the books as providing the necessary data but not necessarily in the 
final form you need it. I could instead have grouped all postage 
expenses as children under one postage expense, now no math to do the 
990-EZ but math for each event/project. Since there is only one 990-EZ 
per year, obviously easier to do the way I described first but THAT is 
precisely the sort of choices we must make when setting up our charts of 
accounts.