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dmertz
Level 15

New 401k loan repayment rules (Tax cuts & jobs act)

Seems like a bit of creative bookkeeping by the admin if they just reinstated the original loan, but the result is the same as if they just created a new loan.  It was still a distribution and rollover.  You avoid taxation by telling TurboTax that you moved the money to another account (or returned it to the same account) and that you rolled the entire amount over.

New 401k loan repayment rules (Tax cuts & jobs act)

Hi dmertz,

 

I think you are right on their creativity 🙂

 

" It was still a distribution and rollover.  You avoid taxation by telling TurboTax that you moved the money to another account (or returned it to the same account) and that you rolled the entire amount over."

 

How do I tell TurboTax that? I mean do I need to receive a different form that I'll enter into TurboTax, or TurboTax will just ask me that? When I entered that 1099-R, TurboTax didn't ask this but I could missed it completely. 

 

Thank you! 

dmertz
Level 15

New 401k loan repayment rules (Tax cuts & jobs act)

You must have missed it.  Edit the Form 1099-R and go through the questions again or delete and reenter the Form 1099-R.

New 401k loan repayment rules (Tax cuts & jobs act)

You are right, right after that, TurboTax asked a few questions, and one of them is where does the money go, which was answered wrong earlier.  And there is a choice to stating the money went back to the original account. 

 

Thanks!

az2ca2018
New Member

New 401k loan repayment rules (Tax cuts & jobs act)

Can I roll over part of the loan repayment amount to my spouse's existing IRA account?

dmertz
Level 15

New 401k loan repayment rules (Tax cuts & jobs act)

You cannot roll over your own offset distribution to your spouse's IRA.  The rollover of a code M distribution must be to a retirement account of the individual that received the distribution.

BB35
New Member

New 401k loan repayment rules (Tax cuts & jobs act)

I received my 1099-R for my offset distribution and have M1 in box 7.

 

My question regarding the Traditional IRA is that I had a loan over the yearly limit of $6000.  Can I put the max $6000 into taxable year 2019 and the remainder into taxable year 2020.... Just trying to stay within the rules of returning the distribution into a qualified retirement account while also having a larger figure than I can put into an IRA for the year

 

Thanks  

dmertz
Level 15

New 401k loan repayment rules (Tax cuts & jobs act)

A rollover, including a rollover of an offset distribution, does not get entered anywhere under Deductions & Credits and is not subject to the contribution limits for new contributions.  It gets reported as a rollover by answering the follow-up questions to entering the Form 1099-R.  It would make no sense to use the money to make a new contribution that you would report under Deductions & Credits when that same money could be used to complete the rollover of the offset distribution and avoid the 10% early-distribution penalty; making a new contribution would not avoid the 10% early-distribution penalty.

Jovie
New Member

New 401k loan repayment rules (Tax cuts & jobs act)

Hello - I also had a 401k loan and then left my job in 2019.  I had planned to put that money back into a IRA by April 15th.  How does the recent federal tax filing extension due to Covid19 affect the deadline for the rollover of the 401k loan distribution referred to on earlier answers?

dmertz
Level 15

New 401k loan repayment rules (Tax cuts & jobs act)

Since the deadline for the rollover of an offset distribution is the due date of your tax return (including extensions), the change of the due date of your tax return to July 15 also extends the deadline for completing the offset distribution to July 15.  But rather than ask this question, you should request a filing extension which will extend those deadlines to October 15.

 

Keep in mind that it's up to the receiving financial  institution to accept the rollover as a rollover of an offset distribution.

swanE261
New Member

New 401k loan repayment rules (Tax cuts & jobs act)

I'm back! One final question- to pay back this offset distribution under these terms to my new rollover IRA- was I correctly informed that it needs to be coded as a "60-day rollover" when I make the contribution?  Considering this is well beyond 60 days due to rule of TCJA (nearly 18 months now since we have until Oct 15 with the extension) wondering if the new contribution is to be coded something else so I am not dinged on this come tax time next year when all my new forms are issued regarding my rollover documents.

 

Many Thanks!

 

dmertz
Level 15

New 401k loan repayment rules (Tax cuts & jobs act)

Since the rollover will or has been performed more than 60 days after the distribution was received, the receiving custodian should be recording it in their system specifically as a rollover of an offset distribution after the 60-day period has expired so that the Form 5498 reporting this rollover properly includes the rolled-over amount in box 13a and code "PO" in box 13c.  For this to happen, it's apparent that the receiving custodian must be made aware of the fact that this is a rollover of a plan offset distribution and have a specific way to record that in their system.  How the custodian needs to be made aware of this depends on that particular custodian's procedures; only the IRA custodian can provide that instruction.

 

I'm not sure why they would ask you to indicate that it is a "60-day rollover" and you are probably correct to question the instruction that you got.  Perhaps they are just using that phrase in place of the proper phrase "indirect rollover."  If the IRA custodian is a smaller custodian, say, a bank, it's quite likely that a local branch rep simply isn't adequately trained or experienced to handle less common transactions such as the proper way to handle receipt of a rollover of an offset distribution.

swanE261
New Member

New 401k loan repayment rules (Tax cuts & jobs act)

Thank you Dmertz.  It's Fidelity yet again.  I like many others on the forum never get the same instruction, direction or advice from them twice and am thankful for your responses to help them course correct along the way.  So odd to me they are still not trained for these scenarios. 

 

Thanks again and be well.

 

Nichole

dmertz
Level 15

New 401k loan repayment rules (Tax cuts & jobs act)

Reviewing Fidelity's standard deposit form, I think that they are simply referring to the "60-Day Rollover" box that is used to indicate that the rollover is an indirect rollover normally subject to the 60-day deadline.

apdrew
New Member

New 401k loan repayment rules (Tax cuts & jobs act)

Can you clarify how the rollover of an offset distribution should occur? If I'm understanding your response, I only need to start an indirect rollover with the new plan custodian (fidelity)  but just make sure they record it is a rollover of an offset distribution. And I don't need to involve the old plan custodian (vanguard) in this part of the rollover process if they have already completed the offset distribution and report no outstanding loan.

 

For context here, I had a 401k with an outstanding loan and was terminated. It has been more than 60 days and Vanguard has completed an offset distribution. I am now trying to "repay"/rollover the outstanding loan into my new 401k with Fidelity and it is still before the tax filing deadline. As I understand it, I have the option to: 1) complete an indirect rollover of the offset loan, and 2)  complete a direct rollover of the remaining 401k balance; for part 1 I can work directly with Fidelity only and for part 2 I need to initiate with Vanguard. Does that make sense and sound right to you?

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