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Should I request a corrected 1099-R with a code M1. I quit my job but I paid off the loan. What should I do about the penalty?

 
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Should I request a corrected 1099-R with a code M1. I quit my job but I paid off the loan. What should I do about the penalty?

The code M1 indicates that your loan was paid off with an offset distribution from the retirement plan, effectively a distribution from the plan paid to you that was immediately turned around to pay off the loan.  As such, the distribution is subject to tax and to an early-distribution penalty unless an amount equal to the offset distribution is rolled over to another qualified retirement account like an IRA.

The code M indicates that you have until the due date of your 2018 tax return, including extensions, to come up with the money to roll the offset distribution over to another qualified retirement account.  Doing so will allow you to continue to defer taxes on this money and to avoid the 10% early-distribution penalty.  Any amount not rolled over is taxable income on Form 1040 line 4b and is subject to an early-distribution penalty reported on Schedule 4 line 59.

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Highlighted
Level 15

Should I request a corrected 1099-R with a code M1. I quit my job but I paid off the loan. What should I do about the penalty?

The code M1 indicates that your loan was paid off with an offset distribution from the retirement plan, effectively a distribution from the plan paid to you that was immediately turned around to pay off the loan.  As such, the distribution is subject to tax and to an early-distribution penalty unless an amount equal to the offset distribution is rolled over to another qualified retirement account like an IRA.

The code M indicates that you have until the due date of your 2018 tax return, including extensions, to come up with the money to roll the offset distribution over to another qualified retirement account.  Doing so will allow you to continue to defer taxes on this money and to avoid the 10% early-distribution penalty.  Any amount not rolled over is taxable income on Form 1040 line 4b and is subject to an early-distribution penalty reported on Schedule 4 line 59.

View solution in original post