401(k) loan offset under Tax Cuts and Jobs Act of 2017

[shin8407]

I left my previous job voluntary with around $25k outstanding 401(k) loan. After 2-3 months, I received a letter from my prior employer informing me that the loan was deemed default since I left the job and stopped making loan repayments. From reading the Tax Cuts and Jobs Act of 2017, sounds like I have until 4/15/2020 to make $25k contribution to my IRA or new employer's 401(k) to offset the loan amount and not pay early distribution penalty or the ordinary income tax. What form do I need to complete to report this event for my 2019 tax filing? Is TurboTax making update to the system to recognize the loan offset and not pay the penalty + tax? 

Thanks.  

[shin8407]

Thanks. Are you saying what's mentioned in the article below is incorrect? Are you ERISA attorney or CPA?

https://www.creditkarma.com/tax/i/401k-tax-reform-loan-repay/

[shin8407]

Or this article?

https://www.mysolo401k.net/solo-401k/reporting-qualified-plan-participant-loan-offsets/

[Critter]

Sorry ... I was redoing my answer when you posted ... so many changes happened and this is one I forgot about ... http://www.401khelpcenter.com/loans_2.html#.XfA2eZNKi00

So you do have the ability to "roll" that amount over but not sure if the program has that in the system yet ... will do a test and let you know.

[shin8407]

Thanks! I'm not an EA or CPA so having hard time what the article below is asking to do. Any help would be appreciated. I don't want to end up with $6k+ tax liability from the loan... 

https://www.mysolo401k.net/solo-401k/reporting-qualified-plan-participant-loan-offsets/

[Critter]

From what I can see is the employer who has the loan default needs to be either paid off  OR  be  informed of  where the amount was rolled so they can issue the 1099-R with the correct code in box 7 ... this is nothing the TT program needs to handle.   I would do it this year so you the form is issued correctly ... contact them to see what needs to happen to make this easiest on everyone.  

[dmertz]

This should not have been processed by the employer as a deemed distribution but should instead have been processed as an offset distribution.  The Form 1099-R reporting an offset distribution should include code M in box 7 of the Form 1099-R, not code L.  Before the end of the year, check with your former employer to see how they will be reporting it on the 2019 Form 1099-R that they will be issuing.  If they did this incorrectly by handling it as a deemed distribution, have them make the correction.

Reporting a rollover of an offset distribution is reported just like the reporting of any rollover.  In TurboTax you'll indicate that you moved the money to another retirement account and indicate the amount that you rolled over.  You have until the due date of of your 2019 tax return, including extensions, to come up with the money to roll over an offset distribution made in 2019.

[Critter]

Thanks @dmertz   ... I was looking for the new code M but did not see it in the conventional places.  

Guess I should have looked at the actual form first :  https://www.irs.gov/pub/irs-pdf/f1099r.pdf

[Gdbnet]

Does the "Tax Cut and Jobs Act of 2017" affect 401(a) plans the same way? (Such as the Thrift Savings Plan for the Federal Government.)

I was notified of the taxable distribution of a loan balance effective Apr 2020 (due to retirement).  If it follows the 401(k) model, I would have until ~15 Apr 2021 (assuming no extension) to either repay or rollover the balance into an IRA, etc.

The notification from TSP still says only 60 days for rollover.  I haven't  been able to find authoritative guidance  in the IRS code that governs this.

[dmertz]

All 401(a) plans (including 401(k) plans) provide extension of the rollover period for offset distributions, indicated by code M in box 7 of the Form 1099-R.  The federal TSP is also treated as a plan to which section 401(a) applies, so it too should provide this extension.  In either case, check with the plan to see that the Form 1099-R will include code M to indicate an offset distribution.