I had a 401K loan ($7,200) under a previous employer that defaulted in 12/18/18. Can I fund a new IRA on 1/18/19 (within 60 days) to offset tax penalty from default loan?

[dmertz]

It depends on whether or not you actually defaulted, resulting in a deemed distribution (code L on the Form 1099-R) or if you did not actually default but instead the plan made an offset distribution after your separation from service to satisfy the loan (code M).  You'll receive a Form 1099-R around the end of January that will tell you which type of distribution happened.  A deemed distribution is not eligible for rollover but for an offset distribution you have until the due date of your 2018 tax return, including extensions, to complete the rollover of the offset distribution.

You should either wait until you receive the 2018 Form 1099-R for this distribution or contact the plan administrator to find out what code will be in box 7 of the Form 1099-R.  If it shows code M (possibly along with code 1, 2 or 7), you can complete the rollover and then report it on your tax return as having been rolled over.