401k loan

Forum|Forum|5 years ago
August 8, 2021
6 replies
59 views

While working for my employer I took a loan out of my 401k and repaid it on time with interest. When I left the company I withdrew my 401k. I received 2 1099’s for both withdrawals but do I have to pay taxes on the repaid loan?

macuser_22

Alumni - Champ

What codes are in box 7 on the 1099-R's?

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

Mimi3586Author

Level 2

The first one has a 1 in box 7 and the second one has 1M

macuser_22

Alumni - Champ

The code 1 is a normal early distribution distribution that unless you rolled it into an IRA is taxable as ordinary income and also subject to an additional 10% penalty.

The code 1M means that you had an outstanding loan and that money was taken to pay the loan and is also taxable just as the code 1 above, except the "M" means that you have until Oct 15, 2021 (assuming that it is a 2020 1099-R and you either filed for an extension OR filed your tax return by May 17, 2021), to roll it into a Traditional IRA by replacing the box 1 money with other funds, then is is a non-taxable rollover.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

Mike9241

Level 15

when you withdrew the 401(k) what did you do with it. if you did a direct rollover there should be no tax consequences but you have to check the codes on the 1099's. if you got the money directly you had 60 days to put it in another tax-deferred a/c like an IRA. failure would make the entire distribution taxable.

Mike9241

Mimi3586Author

Level 2

I used the loan to pay off some past medical bills and when I left the company I was on unpaid medical leave from a car accident and used the rest to basically survive.

Opus 17

Level 15

Code 1 is a regular distribution. That will be taxable to you as regular income, plus a 10% penalty for early withdrawal unless you are

age 55 or older when you separated from service with the company. If you want to reduce your tax liability, you would have to deposit some or all of the money into a new qualified retirement plan such as an IRA within 60 days, which would be considered a rollover. If you kept the money, you will owe tax and the penalty.

Code 1M is a “deemed distribution.” This occurs when you took a loan and had a balance outstanding when you separated from service with the company. This counts as a distribution because you previously received the money and did not pay it back. Under new rules, you have until October 15, 2021, to put some or all of the money into an IRA or other qualified plan and have it count as a rollover, which would make that portion of the deemed distribution not taxable. Any portion that you keep is subject to regular income tax plus an early withdrawal penalty.

The 1099 with code 1 should be the amount of money you actually withdrew, and the 1099 with code 1M should be the amount of your

outstanding loan balance. If you really had completely paid off the loan, then you should not receive a 1099 with code 1M. You would need to contact the trustee of the 401(k) plan and discuss with them whether you repaid the full loan amount and if you are correct, they would need to issue a corrected 1099 before you file your tax return.