401k Loan
Client has a 100% pre tax 401k valued at 800k with a 25k loan and no longer employed. She plans on rolling over the 401k and have loan paid off during rollover. She is 50 and aware the loan payoff amount will be reportable as income and also have 10% early withdrawal associated. Depending on her total income reported in 2022 from all sources she may wish to add funds to IRA via 60 day rollover to eliminate or lower the taxable amount reported due to loan payoff.
Reading the IRS site it appears client can utilize 60 day rollover and put back the 25k reported for loan payoff.
Any guidance would be appreciated!!
Permalink Submitted by David Mertz on Wed, 2022-10-19 12:07
If the loan was current at the time of separation from service, the loan payoff should be done by the plan as a qualified loan offset distribution, reported with codes 1 and M in box 7 of the Form 1099-R. The deadline for rolling over a qualified loan offset distribution is the due date, including extensions, of the tax return for the year in which the offset distribution occurs. For a qualified loan offset distribution occurring in 2022, the client would have until October, 16, 2023 to complete the rollover.