ComplianceTax & AccountingJanuary 10, 2019

Individual retirement accounts: Rollover of qualified plan loan offset amounts further explained

Overview

In August 2018, Wolters Kluwer posted an article to Insights explaining a provision included in the Tax Cuts and Jobs Act of 2017 which allows an extension to the 60-day rollover requirement for qualified retirement plan (QRP) loan offset amounts. Since publication of the August 2018 article, the Internal Revenue Service (IRS) has provided further information on this provision. This article is a companion to and expansion of the August article.

Clarification by the IRS

The IRS, in its 2018 Publication 590-A, Contributions to Individual Retirement Accounts (IRAs), indicates on page 21 that a “qualified” plan loan offset is defined as a plan loan in good standing that is “offset” because the employer plan is terminated or because the participant severs his/her employment. An individual that has a qualified plan loan offset has a deadline of his/her tax return due date, plus extensions, to complete a rollover of the loan offset amount. If a plan loan offset occurs for a reason other than plan termination or severance from employment, it is not a “qualified” plan loan offset, and the participant has only 60 days from the date the offset occurred to complete a rollover.

Additionally, the IRS, in its 2018 Instructions for Forms 1099-R and 5498, provides on page 18 a “Guide to Distribution Codes”.  In the explanation for Code M―Qualified plan loan offset, it states that Code M is used, if applicable, with codes 1, 2, 4, 7, or B. Note that IRS code G-Direct rollover and direct payment, is not permitted as an additional code. As a point of clarification, this indicates that other QRP amounts directly rolled over or distributed (including plan loan offset amounts that are not qualified) would be reported on separate Form(s) 1099-R and only distribution amounts coded with an ‘M’ have this extended rollover period.

Conclusion

Plan participants are encouraged to discuss plan loan offset rollover eligibility with their tax preparer and the QRP administrator to specifically determine whether the plan loan offset is qualified as it will determine the deadline to complete a rollover of the eligible assets.

Randy Heidmann
Senior Specialized Consultant, Tax Advantaged Accounts, Compliance Center of Excellence
With more than 40 years of industry experience, Randy Heidmann has helped hundreds of financial organizations create, implement and maintain their tax-advantaged accounts programs.