Sophia Wang

This has been a few years...... (sweat)

We didn't find out about this since he extended his tax filing, and then missed the extension. So we are way overdue on the tax. Would this still be ok to 'pay back' the loan? Or we will have to incur taxation, and then if they want to pay back, it will only just increase his 401k basis? Also, does this taxation incur penalty?

What would the 1M do differently than 1L?

If I may ask one more time just to be clear 100%. At this point, he would have to file tax considering 1099-R amount is regular distribution, the box 7 says '1L', he is in late 30's. Is there penalty involved as well? Since he still have the option to pay the loan back with interest, the benefit of that payback is to increase his 401k basis, but that amount he puts back is none-taxable in the future, but the growth of the funds will be taxable in the future when withdraw occurs. Thank you all again for educating me!

There was no hard 'termination of employment'. This employee was a consultant that was paid on hourly basis, and after a previous project, he stopped taking on additional project, but no official termination of employment with the company, and I think the HR didn't terminate in the 401k system as well. But it has been over a year by now. Thank you all for your explanation. This was something I don't understand at all.

Can you explain that a bit more? so the tax for the year 1099R was issued still needs to be paid as distribution, is there any penalty to be paid on that? If the loan amount is repaid, creates basis has any relationship with pre-tax money, post-tax money? Sorry I am super confused what would the payback do.

This is not 2020, not COVID-19 related. But I have read somewhere on this forum that the loan can be repaid back, but I am not quite sure what the tax implication is, especially if they haven't paid the tax for that distribution yet.

Employee stopped working for the company, therefore defaulted on the loan took out for primary home purchase. Loan is considered 'Deemed Distribution', 1099R is issued, and time has passed over a year. Employee called saying tax for the previous year has not yet been filed, although 1099R has been received. Can employee still pay back the loan, and not utilize the 1099R while filing for tax for the previous year? Thanks in advance!