401k loan offset

[ndp4949]

I had a 401k loan through my company for the purchase of my primary residence.  I left my company in 2022 but at the time I didn’t have the $10K remaining to pay off the loan in the 30 days after I left.  So the loan was offset.  I read that you have until the filing deadline of the tax year (so technically Oct 2023) to pay it back if it’s due to severance from my employment.  However when I recently tried to pay it back my old company said I would have had to do it in the 30 day period.  My question is, is this accurate that they can say no to this?  And if so, can’t I just rollover my 401k to say vanguard and then try to do the loan offset payback?

[MinhT1]

The IRS says in this IRS FAQ:

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.

So you have until April 18, 2023 (or October 15, 2023 if you apply for an extension to roll the amount over to another retirement such as a Traditional IRA to avoid taxation of the amount offset.

[dmertz]

You'll need to make the rollover to an IRA, making sure to tell the IRA custodian that it is a rollover of a qualified offset distribution so that they code it correctly on Form 5498.

[ndp4949]

Thanks does it make any difference if I voluntarily left the employer rather than true severance where the employer lays you off?

[dmertz]

The reason for leaving the company doesn't matter.  Either way you had a separation from service with this employer.

[ndp4949]

Thanks so much.  I'm surprised how little everyone knows about this topic.  I reached out to Vanguard  and they were unclear on whether they would issue the appropriate codes on the 5498.  My understanding is it will need to say PO on box 13 but I don't trust they'll get it right.

In addition, my tax person knew nothing about this and she still wanted me to pay taxes on the distribution and 10% penalty!  It would cost me $4k in taxes and penalties if this doesn't get done right.