4066 / Does a loan taken under a tax sheltered annuity plan have to be evidenced by an enforceable agreement in order to avoid taxation as a deemed distribution?

To avoid treatment as a deemed distribution, a loan must be evidenced by a legally enforceable agreement, which may include more than one document, set forth either in writing or in an electronic medium specifying the amount of the loan, the term of the loan, and the repayment schedule.

The agreement does not have to be signed if it is enforceable under applicable law without being signed.¹

If the agreement is set forth in an electronic medium, it must be one that is reasonably accessible to the participant and provided under a system that is reasonably designed to preclude anyone other than the participant from requesting a loan, provides the participant with a reasonable opportunity to review, confirm, modify, or rescind the terms of the loan before it is made, and provides the participant with confirmation of the loan terms within a reasonable time after it is made. The confirmation may be provided in an electronic format or in a written paper document. If it is provided electronically, it must be done in a manner that is no less understandable to a participant than a written document; at the time a confirmation is provided, a participant must be advised that he or she may request and receive a written paper document at no charge.²