I used a 401k withdrawal to payoff a loan in the same account which was from my previous employer. How do I report the offset 401k loan payoff on my tax return?

Forum|Forum|1 year ago
February 16, 2025
2 replies
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I'm looking to avoid the 10% penalty as I'm 56

SharonD007

You don't report an offset 401(k) loan payoff on your tax return. The 401(k) withdrawal that you took to pay off a 401 (k) loan is a distribution. Since you are under the age of 59 1/2 you will incur the 10% penalty.

Refer to the IRS Topic Considering a loan from your 401(k) plan? and the TurboTax article What happens if I have a 401(k) loan but later lose or quit my job?

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cnauerdAuthor

Thank you for the response! I had a followup question...my Fidelity plan lists IRS code M which is "Qualified plan loan offset". Are there any cases where my payoff of my loan with a withdrawal from the same account would qualify as an offset and therefore not trigger the 10% penalty? I was laid off in 2023 and did this transaction in 2024.

JamesG1

Did you receive a 2024 IRS form 1099-R that reported the distribution that was the 401(k) loan payoff? It sounds like the issuer of the IRS form 1099-R could be reporting the code M on the form.

IRS Plan Loan Offsets states:

The instructions further require that a QPLO should be reported as one would any other actual distribution.

In addition, the administrator would enter Code M in box 7 of Form 1099-R.

Plan administrators must report any QPLOs on Form 1099-R for QPLO distributions made in 2021 and later.

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cnauerdAuthor

My 1099R form from Fidelity listed 1 on box 7 and not M. If I paid off the loan amount with the withdrawal, should it be coded as M? If it should, do I need to reach out to Fidelity for a revised 1099R?