Retirement tax questions


@bkmDanno wrote:

@Opus17,  unfortunately, it appears that advice is incorrect.  After being laid off, I rolled the remaining 401k balance to a new IRA I opened with Ameritrade.  And I received a 1099R from from Vanguard with the outstanding loan amount coded as M7 in Box 7.  I just talked to Ameritrade and they said they have no way of accepting a loan payment for the loan and I would have to go back and talk to Vanguard.  Vanguard told me they couldn't accept any payment for it and that I would need to talk to the IRS about any tax implications.  The IRS went through a bunch of questions with me and concluded that the WHOLE loan amount is FULLY TAXABLE and that the Tax Cuts & Jobs Act payback extension does not apply because Vanguard and my former employer (or anybody else's employer & investment company like Vanguard)  DECIDE THE  RULES about payback, not the IRS!  Talk about a bum deal.  This means I'll be paying a huge tax bill. 

Live and learn - always consult a TAX PROFESSIONAL about matters like these.


It is not the IRS that allows it, it it the 2018 tax law.   The Tax Cuts and Jobs Act  of 2018 (TCJA) provided for it.

 

The financial institution that holds the rollover IRA is legally obligated to receive from you the amount of the code M 1099-R and report it as a rollover contribution on a 5498 form.    They are NOT receiving a loan repayment from you - they are receiving a rollover contribution as defined in the 1099-R instructions:

https://www.irs.gov/instructions/i1099r

 

If you timely file your 2020 tax return or file an extension then you have until  Oct 15, 2021 to complete this.

 

Per the IRS:

A plan may provide that if a loan is not repaid, your account balance is reduced, or offset, by the unpaid portion of the loan. The unpaid balance of the loan that reduces your account balance is the plan loan offset amount. Unlike a deemed distribution discussed in (5), above, a plan loan offset amount is treated as an actual distribution for rollover purposes and may be eligible for rollover. If eligible, the offset amount can be rolled over to an eligible retirement plan. Effective January 1, 2018, if the plan loan offset is due to plan termination or severance from employment, instead of the usual 60-day rollover period, you have until the due date, including extensions, for filing the Federal income tax return for the taxable year in which the offset occurs.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**