401k rollover w/ loan to IRA
I have a 65 yr old client who still has a loan against his 401k despite the fact that he retired last yr. Custodian will allow him to pay the loan back for the next 3 yrs. He wants to roll over the balance to his IRA but of course he’ll end up owing taxes on the loan amount. If custodian allows, can he roll over part of the 401k to the IRA, thereby keeping 401k open & not triggering the tax? My thinking is that if for example he owes 30k on a balance of 400k he could roll over all but 30k to the IRA & not trigger the tax on the loan. What do you think? Thank you.
Permalink Submitted by mk foss on Fri, 2009-06-05 18:30
This will depend on the loan provisions of the specific employer. Many employers offset loans at the termination of employment or when a rollover is requested but it varies from employer to employer. At least one private ruling allowed the plan participant to rollover the retirement plan balance less the loan and contribute funds equal to the loan balance within 60 days to make the entire rollover tax free.