particpant loan rolled into a qualified plan within sixty days

[Guest Jeanie]

Does anyone what a participant needs to do if they roll a loan into a qualified plan within the sixty day time period? I assume they have to fill out an IRS form indicating that the loan was rolled over since the prior recordkeeper is going to report the loan as a taxable distribution on a 1099-r. Thanks

[Guest b2kates]

i believe that you can not rollover, but only direct transfer a loan.

under state law if the loan is distributed the debt is satisfied once in the hand of the participant. You can not validly owe yourself money.

[QDROphile]

B2kates is correct, and that is why you can't do a direct rollover of a loan. A direct rollover is not a transfer of a loan. While it is true that a direct rollover might not be touched by the participant, a rollover, by definition, involves a distribution -- otherwise it would be a transfer. If it involves a distribution, legally the particpant touches, or is entitled to touch (sort of like constructive receipt), the asset. But the IRS says that you can do a direct rollover of a loan. A practical position, but legally incorrect. Still, we all do do direct rollovers of loans beause the IRS says we can. But we don't do rollovers that put the loan in the hands of the participant to carry to the new plan; the loan would be extinguished and the rollover would fail.