IRS offers new guidelines for qualified face-to-face loan offsets

Earlier this week, the IRS published proposed rules to extend the rollover period for certain planned loan settlement amounts. The proposed rules implement parts of the Tax Cuts and Jobs Act (“TCJA“), Which has an extended rollover period for a qualified planned loan offset (“QPLO“), Which is a type of plan loan settlement. Even when the rules are suggested, they can be relied on immediately, and it is important to know what they say.

As a background, if a subscriber’s retirement account is used to repay a plan loan, the amount of the plan account used to repay the loan, also known as the offset, is treated as a rollover creditable payout. In such a case, the offset amount can be transferred to an eligible pension plan within 60 days. This is because a distribution of any Plan Loan Adjustment Amount is an actual distribution and not an assumed distribution under IRC Section 72 (p).

A QPLO extends the normal rollover period of 60 days to the due date (including renewals) of the subscriber’s tax return for the year in which the amount is treated as a distribution. The employee can also receive an automatic six-month extension if they file their tax return by April 15, 2021 (the normal due date), extend the QPLO amount within the six months (by October 15, 2021 at the latest) and then their Change the return until October 15, 2021 to reflect the rollover.

A QPLO is defined as a plan loan compensation amount that is distributed or treated solely from a plan to an employee or beneficiary because: (a) the employer terminates the plan, or (b) the employee fails to repay the loan because he or she has a severance payment and offsetting takes place within one year after termination of the employment relationship by the employee. The unpaid balance of the loan is equal to the plan loan settlement amount.

In all cases, the loan must meet normal loan requirements and is subject to all plan loan regulations such as loan limit, amortization and other requirements set by the tax code immediately prior to the termination of the plan or the termination of the employee’s employment. In addition, the loan must not be in arrears at the time the plan is terminated or the employment relationship is terminated.

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