1099R 1M (qualified loan offset) rollover deadline

[LAW123]

I have a 401K loan from a previous employer. The loan is considered a qualified loan offset as I left my company in 2025. The 1099R I received from my previous 401K shows code 1M and it shows the remaining loan amount and taxable amount (same as remaining loan amount). I could not pay off the loan in the 90 days required. So I've been saving money to roll in to an IRA so I can avoid taxation and penalty. Now that I have the loan amount can I roll it in to an IRA before April 15th 2026 to avoid taxes/penalties?  How do I show this on my W4 as the amount is being put in an IRA in 2026. I'm slightly confused on the information out there, some say I had 60 days but others say since its a qualified loan offset I have until tax deadline of the following year (meaning 2026).

[DavidD66]

You have at least until April 15, 2026 to rollover a distribution of a Qualified Plan Loan Offset (QPLO).  According to the IRS: 

IRC Section 402(c)(3)(C)(i) provides that a distribution of a QPLO may be rolled over by the participant (or spousal distributee) to an eligible retirement plan by the individual's tax filing due date (including extensions) for the taxable year in which the offset is treated as distributed from a qualified employer plan. The individual can obtain a six-month extension of time to complete the rollover (typically from April 15 to October 15) by obtaining an extension of time to file his or her individual income tax return.

For more information see the following IRS article:  Plan loan offsets

[LAW123]

Thank you. How do I indicate the rollover on my tax form and that it was completed before April 15th? Are there additional forms needed?

[DavidD66]

No, there are no additional forms required.  After you enter your Form 1099-R, there will be a series of questions.  Continue through ALL of the questions and make sure you answer the question "What Did You Do With The Money From [Retirement Plan]"? Be sure you indicate that you "rolled over all of this money to an IRA or other retirement account (or returned it to the same account)."  Indicate you have even if you have not, but make sure you do rollover the money into an IRA or other retirement plan.  

[Opus 17]

Be aware that if you file early, and say you completed the rollover, but then fail to in fact complete the rollover by even one day, you will need to file an amended return and could owe interest and penalties on the taxes not paid by April 15.  Make sure that when you make the payment, you leave enough extra business days for the receiving plan to process the transaction before the 15th. 

[LAW123]

Thank you! I plan to do the rollover this week so a couple months before deadline. 

[jessicajude]

Hi David, 

Do you have any guidance when the plan servicer refuses to amend the 1099R? Backstory... my husband's role was eliminated March of last year. He did go back to work for the same employer after being off work for ~6 weeks. However, payroll did not resume loan payments until the loan was already defaulted in the July timeframe. Since the loan payments were being withheld from his paycheck from that point on, it was quite a surprise when we received a 1099R for the full defaulted loan amount (with code L in box 7). Through research, I came across the QPLO, which I believe this qualifies for as it was due to termination. However, Empower, the servicer of his 401(k), has been no help whatsoever. They have no intention of complying with the QPLO guidelines per the IRS. We have called multiple times and the "backoffice" will not have anything to do with a QPLO. They are telling us we should handle with an accountant. It's been very frustrating and we are at a loss in how to proceed. The tax liability is ~$10,000. Do you have any guidance on how to handle?

[Opus 17]

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@jessicajude wrote:

Hi David, 

Do you have any guidance when the plan servicer refuses to amend the 1099R? Backstory... my husband's role was eliminated March of last year. He did go back to work for the same employer after being off work for ~6 weeks. However, payroll did not resume loan payments until the loan was already defaulted in the July timeframe. Since the loan payments were being withheld from his paycheck from that point on, it was quite a surprise when we received a 1099R for the full defaulted loan amount (with code L in box 7). Through research, I came across the QPLO, which I believe this qualifies for as it was due to termination. However, Empower, the servicer of his 401(k), has been no help whatsoever. They have no intention of complying with the QPLO guidelines per the IRS. We have called multiple times and the "backoffice" will not have anything to do with a QPLO. They are telling us we should handle with an accountant. It's been very frustrating and we are at a loss in how to proceed. The tax liability is ~$10,000. Do you have any guidance on how to handle?

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@dmertz 

[edited]

OK, I'm updating my answer because I see in your question that the distribution was code L, not code M (you are responding to a post about code M and I did not see code L in your question.)

Given this was code L, and the timeline, I agree with @dmertz 's analysis.

[jessicajude]

I had the same thought after typing up my last message. I don't think that Empower was ever aware that my husband was terminated since it was so brief (we have a severance letter though). We are trying this approach with Empower now. Fingers crossed.

The loan payments after they resumed were treated as loan payments (though not factored into the amount on the 1099R - doubly frustrating), and they only allow 1 loan at a time. The defaulted loan will sit on the account until paid. We will have the funds available to do a rollover by April 15, but if Empower refuses to recognize it, the defaulted loan will continue to sit there. Any thoughts on these contributions being treated as loan payments after default?

[jessicajude]

For clarification, we could repay the funds to the Empower loan, but this does not eliminate the tax burden of the "distribution."

[dmertz]

@jessicajude , as I see it, no loan offset distribution occurred because your husband was only away from the company for 6 weeks, so no distribution was made that was eligible for rollover.  With no offset distribution having occurred, your husband was still responsible for making payments on the loan.  Once your husband had resumed working there, no offset distribution was possible at that point.  Because the payments did not resume before the loan was declared to be in default, the outstanding loan balance became a taxable deemed distribution, not an offset distribution, reported with code L in box 7 of the Form 1099-R.

A deemed distribution does not satisfy the loan, so the loan must still be repaid.  However, repayments of the amount treated as a deemed distribution become after-tax basis in the plan, so this money will not get taxed twice.  The deemed distribution just pulls this taxable income forward into the year of the deemed distribution whereas if the deemed distribution had not occurred then this amount would be taxable in the future when distributions eventually begin and are not rolled over to another traditional retirement account.

I see no option but to include the distribution in taxable income and pay the increase in tax liaibility.