1099-R with code M
Tax prepping client who changed jobs. Money was taken from old 401k to satisfy a loan when he left. Code M apparently means he can pay it back. The old company says he first has to roll the 401k to an IRA and then he can pay it back. How is this identified as a rollover and not an illegal contribution. Amount is $20,000
Permalink Submitted by Alan - IRA critic on Mon, 2025-03-10 11:54
Code M is an offset distribution where the plan balance is reduced by the amount of the outstanding loan. If the 1o99R was issued in 2024, client has until 4/15/2025 to roll the 20,000 over to an IRA (or 10/15/2025 if an extension is filed). If the 1099R will be issued for 2025, then add a year to those deadlines.
To be clear, he will complete the 20,000 rollover to an IRA, not back to the plan. If he will complete the rollover (or any portion of the 20,000), this is reported as a rollover on line 5 of Form 1040. When making the rollover contribution to the IRA, the custodian must be told that it is the rollover of a plan loan offset so the custodian correctly reports it on Form 5498.