403b defaulted Loan Payment Qualify as a RMD?
Does a missed loan payment which is treated as a 1099 distribution also count towards the RMD requirements for a client who is 70 1/2 + ? If yes are there any downsides in letting distributions happen this way?
Permalink Submitted by Alan Spross on Sat, 2008-08-30 01:20
There are two types of 1099R reported loan distributions. If the 1099R reports a “deemed distribution” using Code L in Box 7, it is not a real distribution and is not credited against any RMD requirement.
On the other hand, an offset distribution is reported on a 1099R like any normal distribution and represents an actual reduction of the plan balance for the defaulted loan amount. This 1099R would count toward the RMD requirement for the year of the 1099R. Therefore, you would need to examine the particular 1099R.
With respect to advantages, in some cases it might be a wash, but the employee might be forfeiting some control as to the amount of the taxable distribution if he elects the offset distribution. The offset could exceed the RMD requirement, or by the date of issue, it is past the year end period to adjust the RMD either way.