Employee with old 401k plan with Loan Subject to 10% Penalty for Rollover
I have a client age 54 turning age 55 in August with an existing 401k loan he wants to pay off out of his 401k balance. When we spoke to a rep. to process we were instructed that he would be subject to an additional 10% penalty for paying off the loan using his existing plan balance to do so since he was age 54. At age 55, there would be no additional 10% penalty but my question is now that relief is provided on company retirement plan loans, would the 10% penalty removal on paying off the loan balance prior to a rollover apply for my client’s situation?
Permalink Submitted by Alan - IRA critic on Thu, 2020-04-02 19:46
Is this is conjuction with a separation from service? If so is that separation this year? If client completes a rollover of a loan offset distribution using other funds, the tax and penalty would be erased. The rollover of the plan loan offset can be done until 4/15/2021 plus any extensions.