topic 401K LOAN REPAYMENT DISTRIBUTION in Retirement tax questions

401K LOAN REPAYMENT DISTRIBUTION

gjwillis — Tue, 01 Apr 2025 22:19:58 GMT

I TOOK A LOAN OUT OF MY 401K FOR LOAN CONSOLIDATION AND AM PAYING IT BACK THROUGH MY PAYROLL. I ALSO RECEIVED A 1099-R CODES "1L" FROM THE DISTRIBUTOR. TURBOTAX IS TREATING THIS AS TAXABLE DISTRIBUTION BUT IS NOT TAXABLE INCOME. HOW DO I TREAT THIS IN TURBOTAX?

Re: 401K LOAN REPAYMENT DISTRIBUTION

VolvoGirl — Tue, 01 Apr 2025 22:24:35 GMT

Code L is a loan treated as a distribution. Which means it’s taxable. Ask your employer or 401K plan why you got a 1099R. You don’t get a 1099R for loans.

Re: 401K LOAN REPAYMENT DISTRIBUTION

Opus 17 — Tue, 01 Apr 2025 22:38:32 GMT

Code 1L indicates a "deemed distribution." That means the loan, or part of it, is being treated as a distribution in addition to being a loan. (In other words, you have to pay tax on it AND repay the loan.)

A deemed distribution occurs if the loan violates IRS regulations. The most common reasons for loan failures is the loan is too large, or the repayment schedule does not follow the appropriate rules. As a consequence for failing to follow the rules, the loan fails as a loan and is considered a taxable distribution. There is more information here.

https://www.irs.gov/retirement-plans/fixing-common-plan-mistakes-plan-loan-failures-and-deemed-distributions

You need to contact the plan, and find out why they characterized your loan as a deemed distribution. If it is a mistake they need to issue a corrected 1099-R. If you or the plan really did break the rules, you have to deal with the tax consequences. @dmertz can probably explain better than me if you have any other questions.

Re: 401K LOAN REPAYMENT DISTRIBUTION

dmertz — Fri, 16 May 2025 15:53:17 GMT

A deemed distribution occurs if there is a failure to meet the terms of the loan, such as failing to repay the loan timely.

A deemed distribution makes the loan taxable but does not satisfy the loan. The loan must still be repaid, but repayments become after-tax basis in the plan so that the amount is not subject to double taxation. Because you were under age 59½ at the time of the deemed distribution, the taxable amount is also subject to a 10% early-distribution penalty.