Should I request a corrected 1099-R with a code M1. I quit my job but I paid off the loan. What should I do about the penalty?

Forum|Forum|7 years ago
June 4, 2019
5 replies
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TurboTax Business Windows

Best answer by dmertz

The code M1 indicates that your loan was paid off with an offset distribution from the retirement plan, effectively a distribution from the plan paid to you that was immediately turned around to pay off the loan. As such, the distribution is subject to tax and to an early-distribution penalty unless an amount equal to the offset distribution is rolled over to another qualified retirement account like an IRA.

The code M indicates that you have until the due date of your 2018 tax return, including extensions, to come up with the money to roll the offset distribution over to another qualified retirement account. Doing so will allow you to continue to defer taxes on this money and to avoid the 10% early-distribution penalty. Any amount not rolled over is taxable income on Form 1040 line 4b and is subject to an early-distribution penalty reported on Schedule 4 line 59.

D

dmertzAnswer

Level 15

The code M1 indicates that your loan was paid off with an offset distribution from the retirement plan, effectively a distribution from the plan paid to you that was immediately turned around to pay off the loan. As such, the distribution is subject to tax and to an early-distribution penalty unless an amount equal to the offset distribution is rolled over to another qualified retirement account like an IRA.

The code M indicates that you have until the due date of your 2018 tax return, including extensions, to come up with the money to roll the offset distribution over to another qualified retirement account. Doing so will allow you to continue to defer taxes on this money and to avoid the 10% early-distribution penalty. Any amount not rolled over is taxable income on Form 1040 line 4b and is subject to an early-distribution penalty reported on Schedule 4 line 59.

H

HelpwithIRA

Level 2

Hi, just looking for some additional information here. Would I be able to re-file my 2018 taxes and pay this balance to a qualified account in 2020, and then be able to cancel the penalty I owe? Or am I too late?

Thanks!