401k loan

Submitted by Bill Happensack on Wed, 2022-08-31 15:51

I have a client who left his job in November of 2021. He had a $10000 401k loan, which he had not repaid. He did not receive a 1009-R for tax year 2021. In August of 2022 he transferred the 401k to an IRA. The loan had gone into default and the amount was deducted from the transferred balance. Does he have until April 15th, 2023 (October 15th, 2023 if he files an extension) to roll over the loan amount into an IRA? If so, does he have to rollover the full amount at one time, or can he make several rollovers of lesser amounts? Also, if the rollover is allowed, how would he indicate to the IRA custodian that it is a a 401k rollover? Your help is appreciated.



Submitted by Alan - IRA critic on Wed, 2022-08-31 21:02

  • Client should receive two 1099R forms in January, one for the amount actually directly rolled over to the IRA showing Code G. The other 1099R will likely reflect a “qualified loan offset distribution” for the 10,000 and any unpaid interest. This 1099R should be coded 1,2 or 7 based on client’s age, plus M to indicate that the amount is a loan offset eligible for the longer rollover period.
  • Client has until 4/15/2023 to roll over any portion of the 1099R amount to an IRA, and 10/15/2023 as an extended deadline if he file for an extension by 4/15. These rollovers can be done in partial amounts, and for each rollover made in 2022 the IRA custodian must be told that the rollover contribution should be coded “PO” (plan offset) in Box 13c of Form 5498. For any rollovers completed in 2023 up to the deadline, the IRA custodian should be told to code it “PO” in Box 13c and also show it as a late contribution in Box 13a. The “PO” code itself indicates the issuing plan to be a qualified plan.
  • If the IRA custodian does not complete the 5498 correctly, there still is only a small chance of an IRS inquiry since the M code on the 1099R already tells the IRS that the 60 day rollover deadline does not apply, so the IRS will normally be looking to match the 2 years of 5498 forms to the 1099R amount. Many IRA custodians will likely have no clue about the meaning of “PO” or late contributions.

Submitted by Bill Happensack on Thu, 2022-09-01 00:21

Thank you.  Great information!

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