If you are a terminating participant with a loan balance, or if you are a participant with a loan balance whose plan is terminating, it may be time to breathe a sigh of relief. H.R. 1 (which was signed into law earlier this year and is also known as the Tax Cuts and Jobs Act) provided an extended time limit to complete rollovers of outstanding loan balances. This applies to participants’ tax years that begin on or after January 1, 2018.
Prior to this legislative change, participants had 60 days from their termination date (or the plan termination date) to complete the rollover of any remaining loan balance in order to avoid taxation on that outstanding amount. Now, participants will have until their tax return due date, plus any extensions, to roll over their balance into a different tax-qualified source. For example: if Mel left service with his employer on January 15, 2018, he would have until April 15, 2019 (or October 15, 2019 if he files an extension) to roll over any outstanding loan balances to his IRA.
Generally, outstanding loan balances are not rolled back into the employer plan from which the employee terminated. Instead, they are rolled into a different employer’s qualified retirement plan (if eligible) or an IRA.
Plans are not required to do any special tax reporting of the outstanding loan balance. In addition, no plan amendment will be required in order to take advantage of the extended rollover period.
Lisa Melberg, Plan Document and Compliance Specialist