"I am confused over the difference between a "deemed distribution" which can't be rolled over, and an "offset distribution" which can be"
It can be confusing even to plan administrators. An offset distribution can be made to satisfy the loan if the individual is eligible to receive a distribution from the plan, such as having separated from service or reaching age 59½. It's effectively a distribution paid in cash that is immediately turned back around to pay off the loan held by the individual's account in the plan. It's a qualified plan-loan offset distribution if the loan is in good standing and has has never been in default.
On the other hand, a deemed distribution occurs when the individual fails to adhere to the terms of the loan, such as defaulting on a loan payment. A deemed distribution simply makes the outstanding loan balance taxable but does not satisfy the loan. The loan still has to be repaid, with the repayments of principal becoming after-tax basis in the plan.
For some reason, some plans seem to declare a deemed distribution and hold onto the loan even under circumstances that would permit a qualified plan-loan offset distribution instead. Doesn't make sense to me.
Nonqualified offset distributions can be rolled over within 60 days. For qualified plan-loan offset distributions, the rollover deadline is extended to the due date of the corresponding tax return, including extensions. Deemed distributions are not eligible for rollover at all.
