austin3515

Loan Offset / Repayment Under New Rules

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Participant terminates in May 2018 with a $10,000 loan.  Participant has until the due date of their 2018 1040 to repay the loan to avoid the taxes under the new tax rules.

Question is, if that participant does NOT close his or her account, can they re-contribute the $10,000 to this plan if it is past the grace period?  Our plans typically do not allow former employees to execute rollovers, which I think technically this would be.

Thoughts?

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What new rules allow participants a longer period to repay their loans?  I honestly am not aware of that rule.  Are you talking about the new rules that allow for a longer rollover period for loan offsets?

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I agree the plan is not required to accept the payment (unless it would otherwise accept a rollover contribution from a terminated former participant). The new tax law extends the deadline for an individual to roll over a qualified loan offset by making the payment to an IRA or other qualified plan, it does not require the plan that originally held the loan to extend the period that it will accept repayment.

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"it does not require the plan that originally held the loan to extend the period that it will accept repayment"

...but if it did, then this would be a nifty way to avoid inadvertent loan defaults if a severed participant missed a lot of payments due to the change-over from payroll deduction repayments to ACH repayments.

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Sounds like loan defaulted in second calendar quarter, so cure period ended 9/30/2018. Because he/she terminated, employer probably must under plan to do a loan offset (i.e., an actual) distribution of unpaid loan balance, rather than a "deemed." Participant will get 1099-R showing loan offset distribution, coded as such. If he/she rolls over that amount to an IRA by due date of tax return, then can claim rollover on 1040. That's the way the TCJA changes work.

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