60-day rollover period

[Guest yukon]

Participant terminates employment with Employer A. Has balance in Employer A 401(k) Plan. Also has outstanding loan balance in Employer A Plan.

She wants to rollover all assets to Employer B's plan, but Employer A will not accept loan payoff. Employer A has already issued a letter that the loan balance will be deemed, and that Participant will receive a 1099-R for that amount.

Question, does the 60-day rule apply to this deemed distribution amount? Can she make up the outstanding principal amount with money out-of-pocket and pay it to Employer B's plan...and avoid any tax consequences???

[RTK]

It seems strange that employer A would not accept payoff. Most loan documents I have seen permit full repayment of loan balance.

An plan loan offset distribution of a loan balance (basically reduction in account balance at distributable event) can be rolled over. A deemed distribution of a loan balance (income tax distribution because of failure to satisfy section 72 code requirements) cannot be rolled over. I think there are separate 1099R reporting requirements or codes for the two.

Assuming it is a plan loan offset distribution eligible for rollover, 60-day period applies. See 1.402©-2. Q&A-8

[JanetM]

Could it be that the loan has passed the cure period? That the prior plan sponsor does not want to mess around with taking the repayment because they never had any after tax money?

Just wondering????