1099R code 1M no penalty?

[Yaya451]

Can I then choose to just not roll it over? I wonder if my old retirement plan just chose to pay off the loan remainder with some after tax contributions I had made. I don’t remember agreeing to it but all well.. as long as I’m up to code. Thanks again for all the help and answers. I very much appreciate it. 

[Yaya451]

@macuser_22  and to answer your question yes I did quit my job mid August. I did have another 1099R with what was rolled over directly to a 403b. That 1099R read code G so was also non taxable. 

[macuser_22]

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@Yaya451 wrote:

Can I then choose to just not roll it over? I wonder if my old retirement plan just chose to pay off the loan remainder with some after tax contributions I had made. I don’t remember agreeing to it but all well.. as long as I’m up to code. Thanks again for all the help and answers. I very much appreciate it. 

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Yes of course - it is an option, not required.

[jlvas]

I had a similar issue but left previous employer and 1099-r code 1M.  I was advised to take out another 401k loan with new employer and then fund a rollover ira or traditional ira so i won't take the tax hit. The amount of 15k though is greater than the limited max amount in ira 7500 for 2023 and 6K for 2022 that the rollover ira gives me an option to fund it with.

I have not completed funding because i'm trying to fund an ira with same amount of the loan. Should i fund the max for both 2022 and 2023 and the remainder of amount to roth ira or what other qualified retirement account can fund? Any suggestions or advice on what can i do to avoid the tax before i file?

[dmertz]

@jlvas , you would be putting $15,000 into the as a rollover, not as a regular IRA contribution that would be subject to a contribution limit.  You can deposit the entire $15,000 as a rollover and make regular IRA contributions subject to the annual limit.

When depositing the $15,000 into the IRA, you must inform the IRA custodian that this is a rollover of a qualified loan offset so that the IRA custodian codes the rollover correctly in boxes 13a, 13b and 13c on your 2023 Form 5498 from the IRA that receives the rollover, not in box 1 as a regular contribution (which would be subject to limitation) or box 2 (an ordinary rollover).

[jlvas]

I explained that to them but they entered as 60 rollover which shouldn’t apply because of code 1M. Anything to be considered about? Also not sure I understand the 5498 form.I thought I fill it out when I file taxes. So the IRA custodian also fills one out?

[DianeW777]

You do not complete a Form 5498, only the custodian.  A copy sent to you from the custodian is your file copy only. As explained by dmertz, the deposit with the IRA custodian must be clear that it should be a rollover from a qualified loan offset. This eliminates taxation and at the same time does not allow a double benefit by incorrectly allocating as a new contribution from funds previously tax free when placed into the 401(k).

@jlvas 

[dmertz]

Nothing to worry about.  The rollover of a qualified offset distribution is the same as a 60-day rollover except with an extended rollover deadline.  The code M on the Form 1099-R will be sufficient for the IRS to understand that the rollover was permitted.  Just be prepared to mention that to the IRS if they question the rollover, which is extremely unlikely.  If fact, if the rollover actually did occur within 60-days of the date that the plan declared the offset distribution, it would qualify as a regular 60-day rollover.

Form 5498 is a form prepared by IRA custodians to provide the IRS with information regarding any deposited into an IRA (other than by nonreportable trustee-to-trustee transfer from another of the same type of IRA).  The custodian properly reporting the rollover of the offset distribution in boxes 13 and not box 2 just provides additional confirmation to the IRS that the rollover was permitted beyond the regular 60-day deadline, matching up with the code M on the Form 1099-R.

[jlvas]

so I’m trying to file before filing deadline, should I wait for this form to be sent to me or is that something they custodian will provide next year?

Thanks so far for info. 

[dmertz]

There is no need to wait for the Form 5498.