Payback of 401(k) Loan
Bob has a 401(k) with company ABC. ABC has terminated their 401(k), so Bob needs to distribute or rollover. He wants to rollover to an IRA, but has a loan balance of $45,000, which was borrowed in February 2020. Investment company, CUNA, won’t allow Bob to payback his loan because the plan was terminated and they cannot accept any additional “contributions” (Sidebar: I didn’t realized a loan payback was considered a contribution…).
Can Bob pay back the loan by adding money to the IRA after he rolls the 401(k) funds? I understand that loans are considered distributions and Bob will receive a 1099 for the loan balance, in this case $45,000.
If the answer is YES ; the follow-up to that is, can he spread the payback over three years in light of the Coronavirus Related Distribution rules, within an IRA? (ie. $15k per year; 2021-23)
Also, he has NOT filed his 2020 taxes yet ; is he too late to indicate to the IRS that he would repay over 3 years?
Thank you so much for your time.
Permalink Submitted by Alan - IRA critic on Wed, 2021-06-30 20:50
Did he qualify for a corona virus related distribution (CRD), or is the normal rollover deadline applicable here to an offset loan distribution? The automatic deadline for rollover is the tax due date plus extensions for the year of the offset distribution, so would need to know exactly when the offset distribution was executed. If in 2020 and the 2020 return was not extended by 5/17, it is too late to roll over other money and avoid taxation of the loan balance.