403B loan default
If a 403b participant defaults on payment of a 5 year loan and a 1099 is issued at the end of that tax year, is the loan still considered to be outstanding(i.e. must the participant eventually pay back the loan?)
If a 403b participant defaults on payment of a 5 year loan and a 1099 is issued at the end of that tax year, is the loan still considered to be outstanding(i.e. must the participant eventually pay back the loan?)
Permalink Submitted by Alan Spross on Thu, 2008-05-15 00:02
No. The plan may handle this as either a deemed distribution (1099R coded with an “L”) or an offset distribution. Either way, the defaulted loan is taxable and subject to early withdrawal, but there will be no option to actually repay the loan.
A deemed distribution is NOT rollover eligible, but an offset distribution is.