13 Mar Does the change for 401(k) loans affect me?
Q. Does the the change for paying back 401(k) loans apply to me as I left my job in January 2019? If so, how long would I have to pay it off? I was told it defaulted and was being reported to the IRS as a distribution and no taxes were withheld. I received my 1099R last month. My 401(k) is still in the company.
A. There were changes to when 401(k) loans must be repaid, but it’s all based on dates.
You need to talk with the plan administrator of your 401(k) plan to find out if they are treating the default as a deemed distribution or a plan offset.
A deemed distribution cannot be rolled over and does not qualify for the extended time under the new law, said Howard Hook, a certified financial planner and certified public accountant with EKS Associates in Princeton.
However, he said, a plan offset is eligible to be rolled over and is eligible for the extended time under the new law.
According to the IRS website, each individual plan specifies how a default will be handled.
“A plan may provide that a loan does not become a ‘deemed distribution’ until the end of the calendar quarter following the quarter in which the repayment was missed,” the IRS website says.
In that case, a loan default in January 2019 could be cured if payment is made by June 30, 2019, Hook said.
“A plan can also specify that if the loan is not repaid, the account balance is offset by the unpaid loan balance,” he said. “In this case, assuming the participant separated from service or was terminated, the new tax law allows for repayment of the unpaid balance by the due date, including extensions, of your income tax return for the year in which the offset occurs.”
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