Issue 1099 for loan if current on payments and no loan offset?

[UM1234]

Hi,

This may be a dumb question but here goes...

If a 401(k) participant takes out a loan, makes payments on schedule, the loan is in full compliance with all requirements (less than $50K and 50% of account balance, there is a promissory note, etc.), and there is no loan offset or default, then does a Form 1099-R need to be issued for the loan distribution?

For example: Participant balance is $50K, takes loan for $25K, makes all payments on time. Before loan, 401(k) balance is $50K all in mutual funds. After loan, 401(k) holds $25K in mutual funds and a note from participant for $25K.

I am thinking the answer is No, there is no 1099-R issued for the $25K loan distribution. Basing this on the following:

1. Can't find anything in the IRS 2014 Instructions for Forms 1099-R and 5498 saying that a 1099-R should be issued in this case. Instructions only refer to issuing 1099-R in case of deemed distribution due to loan offset or default.

2. TD Ameritrade's qualified retirement plan distribution form has no place to indicate that a participant is taking a loan.

Any thoughts are welcome, thank you so much!

[Lou S.]

A loan is an asset of the plan and not a distribution.

There is no 1099-R unless the loan goes into default or is part of an offset distribution.

Not familiar with TD Ameritrade forms but you should probably call them and ask if you are using their correct form, particularly if TD issues the 1099-Rs for the plan.

[masteff]

Code Section 72(p). 72(p)(1)(A) says any loan shall be treated as a distribution, however 72(p)(2) says it doesn't apply to any loan that meets the listed requirements. So a qualifying loan is not treated as a distribution. 1099-R is for reporting distributions.

[UM1234]

Thank you both very much. I contacted a local TPA that I work with, and they also said they don't issue a 1099 for loans. I really appreciate your replies.