I had a 401k loan. At the time of my retirement (April 2019), the loan balance was about $20,000 with Thrift Savings Plan. After I retired, I closed my Thrift Savings account and rolled it over to an IRA with Ameritrade. Can I still repay the $20,000 to my Ameritrade account? If so, how long do I have to repay? Want to lower my 2019 tax burden.
Employees who leave their jobs with an outstanding 401(k) loan have until the tax-return-filing due date for that tax year, including any extensions, to repay the outstanding balance of the loan, or to roll it over into another eligible retirement account. Prior to the Tax Cuts and Jobs Act of 2017, the deadline was 60 days.
This means you will have until the tax return due date this year to pay the loan back.
Employees who leave their jobs with an outstanding 401(k) loan have until the tax-return-filing due date for that tax year, including any extensions, to repay the outstanding balance of the loan, or to roll it over into another eligible retirement account. Prior to the Tax Cuts and Jobs Act of 2017, the deadline was 60 days.
This means you will have until the tax return due date this year to pay the loan back.
Thank you! I was worried that since I had closed the TSP account that I would no longer be able to repay the loan.
Hi, I have a similar situation but with twist. I have a loan from my Vanguard 401-k and I've been laid off. Vanguard says my company set it up such that these loans have to be paid back WITHIN 90 DAYS of layoff. But the Tax Cuts and Jobs Act says the deadline is now the due date of the employee’s tax return for the year in which the distribution occurs, including extensions. I need to know which one is the OVERRIDING RULE. Thank you.
The 2019 form 1099-R you got should have a code M in box 7 ... that is the determining factor in determining if you are able to make the timely rollover according to IRS rules.
@bkmDanno wrote:
Hi, I have a similar situation but with twist. I have a loan from my Vanguard 401-k and I've been laid off. Vanguard says my company set it up such that these loans have to be paid back WITHIN 90 DAYS of layoff. But the Tax Cuts and Jobs Act says the deadline is now the due date of the employee’s tax return for the year in which the distribution occurs, including extensions. I need to know which one is the OVERRIDING RULE. Thank you.
They are both correct.
You have 90 days to repay Vanguard. If you don't, they will treat the remaining amount of the loan balance as a "offset distribution" and issue a 1099-R at the end of the year, that you will report on your 2020 tax return.
If you don't repay Vanguard, you have until the filing deadline next year (April 15, or October 15 if you get an extension) to make a rollover contribution into a new account. It can be a new IRA in your name, or maybe the retirement plan at your new job. You can't just send them a check, you need to contact them in advance and make sure they know to process this as a rollover of an offset distribution (because normal rollovers must be made within 60 days). If you make the rollover properly, the 1099-R for the offset won't be taxable, even though you need to report it on your return.
Nothing in the law says Vanguard has to accept the money back after 90 days, but you can put it into a different qualified account.
@Opus17, unfortunately, it appears that advice is incorrect. After being laid off, I rolled the remaining 401k balance to a new IRA I opened with Ameritrade. And I received a 1099R from from Vanguard with the outstanding loan amount coded as M7 in Box 7. I just talked to Ameritrade and they said they have no way of accepting a loan payment for the loan and I would have to go back and talk to Vanguard. Vanguard told me they couldn't accept any payment for it and that I would need to talk to the IRS about any tax implications. The IRS went through a bunch of questions with me and concluded that the WHOLE loan amount is FULLY TAXABLE and that the Tax Cuts & Jobs Act payback extension does not apply because Vanguard and my former employer (or anybody else's employer & investment company like Vanguard) DECIDE THE RULES about payback, not the IRS! Talk about a bum deal. This means I'll be paying a huge tax bill.
Live and learn - always consult a TAX PROFESSIONAL about matters like these.
I want to bring in @dmertz because they are the absolute expert on this topic.
If you fail to repay the loan within 60 days, it becomes a code M distribution from Vanguard. That's the end.
However, you are allowed to make a rollover contribution to a new custodian by May 17, 2021 (if the offset distribution for the loan occurred in 2020). This is an extension of the normal 60 day rollover rule. If Ameritrade won't accept a payment as a rollover of an offset loan, contact another investment house and find one that will accept the rollover. Don't ask them to accept a loan repayment (which they can't in any case, because it was not their loan to begin with), ask them to accept a rollover contribution, and any plan should accept a rollover.
Then on your tax return, you report the code M, and turbotax will ask what you did with the money; you say you rolled it over, and all will be well.
Vanguard can't accept a loan repayment because you closed your account. Ameritrade can't accept a loan repayment because it was never their loan. But you aren't making a loan repayment, you are making a rollover. That should be simple.
File form 4868 for an automatic extension so you have enough time to straighten this out.
@bkmDanno wrote:
@Opus17, unfortunately, it appears that advice is incorrect. After being laid off, I rolled the remaining 401k balance to a new IRA I opened with Ameritrade. And I received a 1099R from from Vanguard with the outstanding loan amount coded as M7 in Box 7. I just talked to Ameritrade and they said they have no way of accepting a loan payment for the loan and I would have to go back and talk to Vanguard. Vanguard told me they couldn't accept any payment for it and that I would need to talk to the IRS about any tax implications. The IRS went through a bunch of questions with me and concluded that the WHOLE loan amount is FULLY TAXABLE and that the Tax Cuts & Jobs Act payback extension does not apply because Vanguard and my former employer (or anybody else's employer & investment company like Vanguard) DECIDE THE RULES about payback, not the IRS! Talk about a bum deal. This means I'll be paying a huge tax bill.
Live and learn - always consult a TAX PROFESSIONAL about matters like these.
It is not the IRS that allows it, it it the 2018 tax law. The Tax Cuts and Jobs Act of 2018 (TCJA) provided for it.
The financial institution that holds the rollover IRA is legally obligated to receive from you the amount of the code M 1099-R and report it as a rollover contribution on a 5498 form. They are NOT receiving a loan repayment from you - they are receiving a rollover contribution as defined in the 1099-R instructions:
https://www.irs.gov/instructions/i1099r
If you timely file your 2020 tax return or file an extension then you have until Oct 15, 2021 to complete this.
Per the IRS:
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. Unlike a deemed distribution discussed in (5), above, 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.
Thank you for your quick reply! So you mean I can take after-tax funds from a regular savings account and put that into a new roll-over account? I guess those savings account funds can be considered the pre-tax loan funds that came out of the 401k last year so that does make sense that that's a roll-over even though it's not direct. Ok, I'll try that.
I'm looking at the IRA deposit form that Ameritrade sent me and it only has these items available:
- Traditional Contribution
- Roth Contribution
- SEP Employer Contribution
- SIMPLE Contribution
- Direct Rollover
- 60-Day Rollover
- Direct Transfer
- COVID-19 Repayment
- Roth Conversion
So maybe Ameritrade doesn't have the ability to accept the kind of rollover you're talking about.
Thank you for your help and I will definitely be applying for an extension.
Dan
YES they can accept this kind of "roll over" ... you have until the due date of the return (including extensions) to put an amount equal to the code M distribution into any other IRA or 401K. Tell them that this is what you are doing so that they can apply it properly. It is an extended 60 day roll over or a direct roll over depending on how they will code it. If you cannot get this done by 5/17 then go on extension so you have the time needed to complete this transaction.
@bkmDanno wrote:
Thank you for your quick reply! So you mean I can take after-tax funds from a regular savings account and put that into a new roll-over account? I guess those savings account funds can be considered the pre-tax loan funds that came out of the 401k last year so that does make sense that that's a roll-over even though it's not direct. Ok, I'll try that.
I'm looking at the IRA deposit form that Ameritrade sent me and it only has these items available:
- Traditional Contribution
- Roth Contribution
- SEP Employer Contribution
- SIMPLE Contribution
- Direct Rollover
- 60-Day Rollover
- Direct Transfer
- COVID-19 Repayment
- Roth Conversion
So maybe Ameritrade doesn't have the ability to accept the kind of rollover you're talking about.
Thank you for your help and I will definitely be applying for an extension.
Dan
Yes, it doesn't matter where the money comes from. Anything you put into a rollover IRA up to the amount of the code M distribution will count as a rollover.
It looks like "60 day rollover" is the closest to being correct. If they can't understand that "60 day rollover" includes the special provision in the case of a loan after termination, then find another plan to accept the rollover.
It does not matter where the money came from to complete the indirect rollover (money is fungible). (For all they know, you closed another IRA account with another bank and are just rolling that money into this account).
Does not need to be a new account - you can roll it into any Traditional IRA account.
A 5489 form box 2 reports rollover contributions both direct and indirect.
Thanks a lot! I'll be back on the phone with Ameritrade in the morning.
It is a 60 day rollover except the law extended the 60 day period to the due date or extended due date of the tax return. The financial institution does not need to know any for the details other than you tell them that is is a qualified indirect rollover. Your other financial business is none of their business. For all they know, you closed an IRA with xyz bank last week and want to roll that money into your account.
Thanks again! I'll see if Ameritrade changes their tune tomorrow after explaining what you've explained to me.
Dan
@bkmDanno wrote:
Thanks again! I'll see if Ameritrade changes their tune tomorrow after explaining what you've explained to me.
Dan
You do not need to explain ANYTHING to them. Just tell them that you are doing a qualified 60 day indirect rollover form another qualified account. The details are your business - not theirs.
I do see another possible problem. The 60 day rollover option on Ameritrade's form says only one rollover is allowed per year (I assume that's an IRS rule) but I rolled over the remaining balance of the Vanguard 401k to Ameritrade last August. Hopefully, since I'm filing for an extension, all I have to do is wait until after the August date and do the rollover before the October 15, 2021 filing date.
The one per year rollover applies to *IRA* rollovers. This is NOT an IRA rollover between IRA accounts so that rule does not apply.
I was wondering about that and having trouble finding a specific answer anywhere. Thank you for clearing that up.
I was going to file for an extension but my return is complete so I can file my return before the 17th. But I'm assuming that if I have the 401k loan payback funds wired to my Ameritrade account before the 17th and Ameritrade already has the rollover instructions from me, that it will satisfy the IRS time requirement even if Ameritrade's process goes past the 17th to put the funds into my IRA. Do you know if that's true?