Final Regulations Issued for Offset Retirement Plan Loan Rollovers

The IRS has issued final regulations implementing a provision of the 2017 Tax Cuts and Jobs Act (TCJA) that permits an extended period—beyond 60 days—to roll over the proceeds of certain retirement plan loans that are offset and treated as distributions. This guidance was issued in proposed form on August 20, 2020, followed by a 45-day comment period. Publication as final in the Federal Register is pending.

Specifically, a qualified plan loan offset (QPLO) is a plan loan in good standing that is offset as a result of plan termination or a participant’s failure to meet loan repayment terms due to severance from employment. Under such circumstances, the amount of the offset loan can be rolled over to an IRA or another employer-sponsored retirement plan as late as the participant’s tax return deadline—including extensions—for the tax year when the loan was offset.

A plan loan that is offset for other reasons, such as for a failure to meet required payments while still employed, is not a QPLO and does not qualify for the extended rollover period. The final regulations provide details and examples to help in making such determinations.

The IRS notes that it has responded to commenter suggestions and set the final regulations’ applicability coincident with loans that are offset on or after January 1, 2021, rather than immediately upon publication in the Federal Register.  As a result, required reporting of QPLOs on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., will first apply to 2021 reporting years, the information returns for which are provided to participants and to the IRS in 2022. These final regulations can, however, be applied by taxpayers and information return filers as of the August 20, 2020, date when they were published in proposed form in the Federal Register.