Payback of Plan Loan Offset

user17603785484 — Mon, 13 Oct 2025 18:15:08 GMT

Terminated Client receives 2 1099's re 401k plan loan offset. One shows M-1 Qualified Loan Offset Gross and Tax are 12,165. The other 1099 shows B-1Designated Roth Account Distribution with Gross 13,850 and Taxable 6,122 (with difference 7,728 (employee designated Roth Contributions). If Client puts funds back in to Roth account ($18,287 via rollover designation) how is this reflected on the tax return since Vanguard will provide no documents until 2026. Should client report 0 taxable distributions on the 1099's? Also, must the tax return be filed no later than October 15 for this election to payback loan offset to be valid. Thanks

Re: Payback of Plan Loan Offset

dmertz — Mon, 13 Oct 2025 19:29:08 GMT

As long as the individual requested a filing extension, the deadline to complete the rollover of the qualified plan loan offset is October 15, 2025. If no filing extension was requested by April 15, 2025, the rollover deadline has passed. The tax return doesn't have to be filed by October 15, although the filing would be late otherwise.

In TurboTax, enter each Form 1099-R exactly as received and, when asked, indicate that the money was moved to another retirement account and indicate the amount of the distribution that was rolled over. If the code M1 distribution is rolled over to a Roth IRA, that would be taxable but not subject to an early-distribution penalty. To make the rollover of the code M1 distribution nontaxable, it would need to be rolled over to a traditional IRA instead. It's also permissible to roll over the entire code B1 distribution (given that that distribution part of the offset distribution) to a Roth IRA, but only $6,122 of that distribution needs to be rolled over to avoid tax and early-distribution penalty on that distribution. In each case, the IRA custodian needs to be informed that these are rollovers of qualified plan loan offset distributions so that they can code the 2025 Form 5498 appropriately. The fact that the Form(s) 5498 will not be issued until next year has no bearing on how these distributions are reported on the 2024 tax return.

(Note that because code M would be a third code in box 7 of the distribution of a qualified plan loan offset from the designated Roth account and box 7 can only accommodate two codes, the instructions for Form 1099-R indicate that the code M is to be omitted from box 7.)

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Payback of Plan Loan Offset

Re: Payback of Plan Loan Offset