deceased with loan on 401k
I have a client who’s spouse passed away with an outstanding loan on his 401k (died at age 53). My assumption is the loan must be paid back prior to rolling it to an IRA in her name (assuming that’s her choice) or tax and penalty’s will be paid on the loan amount. Wanting to see if there’s anything i am missing there.
Permalink Submitted by Alan Spross on Thu, 2010-01-07 19:50
The client should check with the plan administrator to determine the exact status of the loan at the time of her husband’s death. Unless this loan had already become a deemed distribution due to default, she should have the ability to roll over the amount of the loan balance to an IRA to prevent a taxable distribution. If the 1099R is NOT coded with Code “L” for a deemed distribution, it will be considered an offset distribution. Offset distributions are elgible for rollover, providing she has the funds to complete the rollover.