Leaderboard

from the ABA Q and A 2015 #2 (Ha, I wasn't even looking for this, but was looking for something else totally unrelated. not even sure why I looked at this either, but those things happen) 2. § 72(p) – Plan Loans A participant who took out a loan from a Section 401(k) plan fails to make timely payment of the loan (after the cure period). As a result, a deemed distribution occurs in April due to a loan default and later in the same calendar year in November a loan offset occurs because the defaulted participant later reached age 59½ in November which is a distribution event under the plan. At the time the participant defaulted on the loan, no exception to the Code Section 72(t) early distribution penalty was available to him. Does the plan administrator who issues Form 1099-R still indicate that the distribution was a deemed distribution (Code L in box 7 of Form 1099-R) and an early distribution (Code 1) even if there is a loan offset and the participant is over 59½ by the time the plan administrator issues the Form 1099-R? Proposed Response: Yes. Once the participant defaults on the loan, the loan is considered a deemed distribution regardless of whether a loan offset occurs later in the same calendar year. IRS Response: The Service representative agrees with the proposed response. The Service representative stated that it does not matter that the Form 1099-R has not yet been issued at the time the individual turns 59½ as the general rules would apply.