loan from 403(b)
Client was terminated from employer with $36k loan balance. Plan provider says she has 30 days from the date of the first missed payment to pay the loan in full. If not, they will issue the 1099r as a premature distribution. The client will not be able to repay that balance within 30 days since 20 have already passed (she should have called me earlier). Can she replace the 36k by adding to an IRA rollover within 60 days???
Thanks for any help!
Permalink Submitted by Alan Spross on Thu, 2008-09-25 22:36
This depends on the timing of the IRA transfer vrs the date the plan declares a deemed distribution. If the transfer is done first, the plan will offset the loan from the distributed amount, and will issue a full 1099R showing a complete distribution including the loan. Client can then complete the rollover as you indicated because an offset distribution is eligible for rollover.
However, if the plan first declares a deemed distribution, the 1099R is coded as such, and the amount is taxable (plus possible penalty) and NOT subject to rollover. She needs to determine what will happen based on the time line here. Obviously, if she has the funds to roll over, she needs to push for the offset distribution and NOT a deemed distribution.