1099R code 1M no penalty?

[Yaya451]

I received a 1099R for a qualified loan offset (code 1M and 0.00 in box 2a) 

we entered all the information as requested in turbo tax and talked to one of the experts before filing, who said the amount in box 1 was added to our AGI but that no penalty was assessed. I was confused because it was my understanding that unless I rolled over the money I borrowed (it was a smaller amount <$2000) we would pay a penalty and taxes, and we were ready to do so. Now I read somewhere I could also rollover the amount to a qualified plan before April 15th (since distribution took place in 2020.) Do I still have time to do so even though I already filed my taxes? The expert just said I didn’t have to pay a penalty but I’m just confused. Would the penalty be assessed next year if I hadn’t rolled over the amount from box 1? 

[MaryK4]

There should be a penalty for early withdrawal unless an exception applies.  You are able to rollover the amount by the due date of the taxes.  

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.  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.

[macuser_22]

A code 1M is fully taxable UNLESS you use other funds to roll that money into a retirement account by the due date of the tax return.   Then you report is as  a non-taxable rollover.

[Yaya451]

What do I do if I already filed my taxes? Do I still have April 15th to rollover the balance? Do I do an amended return to try and calculate the penalty? I’m just so confused because we answered every question right and entered the information as requested and even got someone online who confirmed we were not being charged a penalty. 

[macuser_22]

Yes, if you can come up with the money by the due date or extended due date (Oct 15)  to roll it into a IRA then there is NO tax or penalty whatsoever.  (If you already filed then an extension is not necessary for the extended Oct 15 date to apply).

On an amended return you just delete any 1099-R already entered and enter the code 1M 1099-R and say that all of the money was rolled over.

See User dmerts's answers in this thread.

https://ttlc.intuit.com/community/retirement/discussion/on-my-1099r-i-have-a-1m-in-box-7-what-does-t...

[dmertz]

$0 in box 2a seems wrong unless the Form 1099-R has an amount in box 5 equal to the amount in box 1, which seems really unlikely.  Is box 2b Taxable amount not determined marked?

The deadline for completing the rollover of a qualified offset distribution is the due of your tax return, including extensions.  Filing by the April 15 deadline would give you until October 15 to complete the rollover pursuant to section 301.9100-2 and file an amended tax return.

[Yaya451]

To clarify, if I just filed my taxes for 2020 yesterday I am still ok to rollover the money by April 15th and still avoid taxes and penalties? I figured as long as it’s done before then the irs is probably not going to play detective with exactly when the money was deposited as long as it was done before April 15th? 

[macuser_22]

Yes.

The amend function will be available after March 25.

If you filed, it is like dropping it into the mail - you cannot get it back if accepted by the IRS or state.

Do not rush to amend - no hurry. You have 3 years to amend and amended returns are taking 6 months or longer to be processed so waiting a few weeks will make little difference and amending too soon might just compound the problem.


To amend your 2020 tax return:

-- First, *wait* to see if your return has been accepted or rejected by the IRS or state. DO NOT do anything until you receive the accept or reject e-mail.

-- If rejected, you can correct and re-send your return.

-- If accepted you should *wait* until your return has been processed and you receive your refund or conformation that any tax due has been paid. (If you file an amended return while you first return is being processed it can cause extended delays for both returns if two returns are in the system at the same time). In addition, if the IRS makes any change on your original return, you might end up having to amend the amendment – a sticky process that can take a year or more).

-- Then you can start the amend process.

It is suggested that it be mailed certified with return receipt (or other tracking service) to verify that the IRS receives it. That is the only proof of mailing that the IRS will accept.

-- Amended returns can be mailed or e-filed - allow 8-12 weeks - can take up to 16 weeks (4 months) for processing.


See this TurboTax FAQ for help with amending:

https://ttlc.intuit.com/questions/1894381-how-to-amend-change-or-correct-a-return-you-already-filed

You can check the status of your amended return here but allow 3 weeks after filing for it to show up:
https://www.irs.gov/filing/wheres-my-amended-returnThe amend function will be available after March 25.

If you filed, it is like dropping it into the mail - you cannot get it back if accepted by the IRS or state.

Do not rush to amend - no hurry. You have 3 years to amend and amended returns are taking 6 months or longer to be processed so waiting a few weeks will make little difference and amending too soon might just compound the problem.


To amend your 2020 tax return:

-- First, *wait* to see if your return has been accepted or rejected by the IRS or state. DO NOT do anything until you receive the accept or reject e-mail.

-- If rejected, you can correct and re-send your return.

-- If accepted you should *wait* until your return has been processed and you receive your refund or conformation that any tax due has been paid. (If you file an amended return while you first return is being processed it can cause extended delays for both returns if two returns are in the system at the same time). In addition, if the IRS makes any change on your original return, you might end up having to amend the amendment – a sticky process that can take a year or more).

-- Then you can start the amend process.

It is suggested that it be mailed certified with return receipt (or other tracking service) to verify that the IRS receives it. That is the only proof of mailing that the IRS will accept.

-- Amended returns can be mailed or e-filed - allow 8-12 weeks - can take up to 16 weeks (4 months) for processing.


See this TurboTax FAQ for help with amending:

https://ttlc.intuit.com/questions/1894381-how-to-amend-change-or-correct-a-return-you-already-filed

You can check the status of your amended return here but allow 3 weeks after filing for it to show up:
https://www.irs.gov/filing/wheres-my-amended-return

[dmertz]

If you filed 2020 tax return yesterday, you have until October 15, 2021 to come up with the money and complete the rollover of whatever portion of the qualified plan loan offset distribution that you can.

[Yaya451]

@dmertz The amount in box 1 is equal to box 5 

[dmertz]

Since the amount in box 5 is equal to the amount in box 1, this distribution is nontaxable.  Since it's nontaxable, it's also not subject to an early-distribution penalty.

[Yaya451]

Aaaaah interesting!!! See, the whole reason why I was stressing out was become of the code 1M.... I guess it’s non taxable all together then?  🤔 interesting! 

[dmertz]

It seems unusual that this sort of distribution would be nontaxable.  Did you previously default on the loan and paid taxes on this loan as the result of a deemed distribution (code L in box 7 of the corresponding Form 1099-R)?  [Edit]  (Apparently not, since defaulting on the loan would make the offset distribution a nonqualified plan loan offset distribution that does not qualify for the rollover deadline being extended to the due date of your tax return and would not have been reported with code M.)

Even though it's nontaxable, you can still complete the rollover.  Since it's nontaxable, it would make sense to roll it over to a Roth IRA.

[Yaya451]

@dmertz @Yeah I’m honestly not too sure why. I’m thinking because my retirement plan included both tax deferred contributions and after tax contribution maybe that loan came out of the after tax contribution pool of contributions. Who knows.... I’m relieved though I was like what did I do wrong? lol 

[macuser_22]

Yes, this seems odd.  The box 5 indicates that money is after-tax contributions and box 1 being the same amount indicate that only after-tax money was used to pay the loan which makes it a wash - that amount can still be rolled over.

Because a code M is only used after a separation from service then I suspect that there is other before tax money that was either also distributed or it remains in the plan.