401k Loan
Client retired Feb 1, 2023 at age 62
with a 401k loan of $25,000 which was in good standing.
Client will rollover 401k soon and loan will be paid off with proceeds. Is it true the client has until April 15th(2023 tax file deadline or extension) to rollover loan payoff distribution?? In reading it appears he may have longer than the traditional 60 day assuming loan meets certain criteria and a severance from employment. He retired, was not severed by employer which may be difference of 60 day vs. longer rollover period.
If his year end bonus is bigger then expected he may wish to roll back all or a portion of loan distribution so the longer period would be a great tool if allowed.
Permalink Submitted by David Mertz on Fri, 2023-05-19 01:44
Yes, the deadline to roll over a qualified plan loan offset distribution that occurs in 2023 is the due date of the 2023 tax return, including extensions. If the client needs until the extended due date to come up with the funds, the client should request an extension for filing the 2023 tax return. The Tax Cuts and Jobs Act of 2017 created this provision that extends the normal 60-day deadline under these circumstances. The Form 1099-R reporting this distribution should include code M in box 7 to indicate that the distribution is a qualified plan loan offset.
Permalink Submitted by Alan - IRA critic on Fri, 2023-05-19 01:55
Yes, client has until the 2023 tax filing due date plus extensions to roll over a qualified plan loan offset amount or any portion thereof. Retirement is still treated as a “severance from employment” for these purposes.