403b loan

[Christopher Singley]

On Tue, Feb 11, 2014 at 1:37 PM, Mike or Penny Novack <
stepbystepfarm at mtdata.com> wrote:

>
> 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 withdrawn early without any tax consequences.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).
>

OP said "loan" not "withdrawal", so I presume the plan administrator agrees
that the distributions qualify under the rules.  I repeat, there are no tax
consequences to qualifying 403(b) loans that are properly repaid.  There
are tax consequences to withdrawals.

The distinction between loan & withdrawal isn't based upon pre/post tax
status of the contributions.  There are 403(b) designated Roth accounts
(i.e. after tax contributions) and you can take loans against those
balances.  You can also take withdrawals of those amounts.


>
> 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
>

>
>>     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).
>

The point I'm driving at here is that you either need two balance sheet
accounts to reflect the 403(b) loan, or else you need zero.  I can't think
of any good treatment where the loan would be accurately reflected by
exactly one balance sheet account.

As the 403(b) loan gets bigger and bigger, what do you imagine happens to
the net worth of the borrower?  Should it get bigger, smaller, or stay
exactly the same?  How do you think this should be reflected on the balance
sheet?

Look up "consolidation of financial statements" in an accounting textbook
for a good background of concepts; that is basically what's going on here.