If there are two plans and one is terminated, creating a distributable event, can loans in the terminated plan be rolled over?

It depends.

If the loan is in good standing - the participant did not default on the loan and the loan meets other statutory requirements - then the loan is treated as an offset and is rollover eligible.


If the loan is in default, then the amount is not rollover eligible. Reasons for a loan being in default include the participant not making loan repayments on at least a quarterly basis.

A loan offset is reported as a regular distribution with Code 1 or Code 7 - depending on the participant's age - in Box 7 of Form 1099-R.

A deemed distribution is reported with Code L in Box 7 of Form 1099-R.

For related reading, see Qualified Plan Loans: Guidelines To Operations and Borrowing From Your Plan.

This question was answered by Denise Appleby
(Contact Denise)


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