Loan Offset

Hello -

I'm sure this has been covered many times on the board, but I was not patient enough to do a proper search for it after 1 minute of failing to uncover anything.  A quick question on loan offsets in a qualified retirement plan.  I understand that typically upon a distributable event (in this case - termination of employment), an outstanding loan becomes immediately due and payable within a certain period of time (60-90 days...based on loan procedures and the promissory note).  Failure to repay in full within this time period results in a loan offset with 1099-R reporting. 

The question is in what year is the 1099-R reported?  I have seen some providers that report it upon the quarter following failure to repay in full and others that do not report it until the entire account is distributed.  I understand the administrative ease of reporting it upon distribution of the entire account...and it makes sense if it is earlier than the quarter following termination, but does not make sense if the participant waits years to request a distribution of their account.  I've been told it is based on whatever the loan procedures say, but waiting until whatever year the remaining monies are distributed does not make sense.

Thank you!

You're right!

Good Luck!

Thanks!

The loan is "deemed distributed" and therefore required to be reported no later than the end of the cure period under the regulations, which is the last day of the calendar quarter following the first missed payment. At that time, it is "deemed distributed" and subject to 1099-R reporting. See Treas. reg. 1.72(p)-1, Q&A-13(a)(2). I think you can probably wait until up to January 31 of the taxable year following the taxable year in which the deemed distribution occurs to deliver the 1099-R, although you can also do it at any time after the deemed distribution has occurred.

It's not going to be a 'deemed distributed' when there is a distributable event.  It's going to be an 'offset' after the failure to repay.

Under the new rules (assuming the bill gets signed), the participant would have until their tax filing deadline (for the year of offset) to roll the loan amount into an IRA.  This used to be 60-days.  Again, this is merely my understanding of the new bill that just went to the President's desk.

Good Luck!