The plan provisions determine how long he has to repay the loan. 60 days is typical.  If he requests a direct rollover before repaying, he would get a 1099R coded G for 650,000, and another 1099R coded as a taxable distribution of 50,000.  However, a provision in the TCJA tax legislation gives him considerable extra time to complete a rollover of that 50,000. He has until the due date including extensions for the year on which the loan balance was distributed as an offset distribution to either roll over the 50,000 to an IRA or to an accepting new employer plan. He could then report a rollover of that 50,000 on his tax return and erase the tax bill. Therefore, if he needs the extra 6 months to come up with the money, he should file for an extension by 4/15 to provide the extra time.  He would have to check with the plan administrator if a partial rollover of the 650,000 was allowed, but even if it was, he would still have limited time after separation to repay the loan balance before the plan would consider the loan distributed with the resulting taxable 1099R.  Since he qualifies for the separation at 55 penalty exception, if he cannot repay he should owe taxes but no penalty and the 1099R would be coded 2 for the exception.  His plan may or may not allow flexible distributions after separation, and for plans that don’t, an IRA rollover and 72t plan can be established to waive the 10% penalty from the IRA distributions under the 72t plan. Due to client’s age, a 72t plan would have to run 5 years.  

• Flag as spam
• Log in to Reply