Final answer:
A qualified plan loan must be repaid within 5 years to avoid taxation as a distribution, except for loans used to purchase a principal residence which may have different terms.
Step-by-step explanation:
Except for purchasing a principal residence, a qualified plan loan must be repaid within 5 years or be taxed as a distribution. This rule applies to loans taken from qualified retirement plans, such as a 401(k). If the loan is utilized for buying a principal residence, different repayment terms may apply, often longer than 5 years.
If the loan is not repaid within this period, it may be treated as a distribution, and the participant may be subject to taxes and potential penalties. Individuals need to be aware of the specific rules and terms of their qualified retirement plans, as they can vary.