1099-r Error?

[ricksomebody]

Hi all!

My 1099-R has in its box 7 "[M7]".  This 1099-R was an IRA loan repayment they automatically took out from my IRA funds when I retired.  I was told by the retirement plan administration company this would be pulled out as a regular distribution, and taxed accordingly.  However, when I get to the Oregon Source Income and Adjustments page it lists the amount under Pensions and Annuities.  I have no Pensions or Annuities in 2022.  If I add it to the IRA distribution line, not the Pensions and Annuities line the Oregon taxes are less than half.  I think there is a MAJOR problem here!  I do not want to pay almost $2000 extra in taxes because of this error!  If I go back to where I entered this particular1099-R in TurboTax Federal forms and change the box 7 to "7-Normal Distribution" the amount stays stuck under "Pension and Annuities" in the state form Oregon Sources and Adjustments. 

[TeresaM]

A Form 1099-R Box 7 code M is for a Qualified plan loan offset.

The IRS says:
A plan loan offset occurs when a participant's account balance (or accrued benefit) is reduced to pay a defaulted loan. This may occur when the terms governing a plan loan require that the loan be repaid immediately as a result of certain events, such as an employee's termination. A Qualified Plan Loan Offset (QPLO) is a type of plan loan offset that meets certain requirements.

Essentially, this is a special kind of rollover.  Enter your Form 1099-R and there are a few screens of questions. Watch for the screen Tell us if you moved the money through a rollover or conversion and select where the money went within 60 days of the distribution. 


then

and you should see

[ricksomebody]

It did not give that many choices, just 2.  It asked: "Did you roll-over" as one, and the other: "I did something else."  Select with radio button.

[BillM223]

I am thinking that you did not have an IRA, because you said that you borrowed money against it.

The IRS says, 

"1. Can a loan be taken from an IRA?

Loans are not permitted from IRAs or from IRA-based plans such as SEPs, SARSEPs and SIMPLE IRA plans. Loans are only possible from qualified plans that satisfy the requirements of 401(a), from annuity plans that satisfy the requirements of 403(a) or 403(b), and from governmental plans. (IRC Section 72(p)(4); Reg. Section 1.72(p)-1, Q&A-2)"

So was this really a loan from your retirement plan like a 401(k)?

And next to box 7 on your 1099-R, where it says, "IRA/SEP/SIMPLE", is this box checked or not? If it is not checked, then you did not have an IRA.

[ricksomebody]

My bad, 401k loan.  Getting swamped with acronyms!

[BillM223]

And 401(k) plans are correctly listed under Pensions and Annuities.

Are you OK now?

[ricksomebody · Accepted solution]

OK, turns out the error WAS on the 1099-R.  After a couple hours on the phone with Turbotax, the company was supposed to have the IRA/Sep/Simple box checked and they did not!  We had 5 from that company.  Some had the box checked others did not.  The 1099-Rs were all the same, and they were all were supposed to be IRA/Sep/Simple box checked.  That is what cause only some to be listed under Pensions and Annuities, and the rest under IRA Distributions.  But then, Turbotax failed to update at the same time I was on the phone with the guy!  (Error 1680)  So we had to fix that first.  Then once we fixed that the program crashed to the desktop 3 times as well!  One time I had to restart the PC to get TurboTax to start again!  I think Turbotax should consider who to fire that is doing the really bad updates!