IRS Issues NPRM for Qualified Plan Loan Offset Amounts

The IRS has issued a Notice of Proposed Rulemaking (NPRM) for qualified plan loan offset (QPLO) amounts to implement Section 13613 of the Tax Cuts and Jobs Act (TCJA), which provides an extended rollover period for a QPLO, which is a type of plan loan offset.

A distribution of a plan loan offset amount is a distribution that occurs when, under the plan terms governing the loan, the employee’s accrued benefit is reduced, or offset, in order to repay the loan. Prior to passage of the Tax Cuts and Jobs Act, a participant had 60 days to roll over a plan loan offset amount from a 401(k) or 403(b) plan account to an eligible retirement plan that accepts the rollover. The act extended this time period until the due date (with extensions) for filing the participant’s federal income tax return for plan loan offset amounts resulting solely from the participant’s termination of employment or the employer’s termination of the plan, i.e., a QPLO.

The proposed regulations confirm that a QPLO is a type of plan loan offset, so most of the general rules relating to plan loan offset amounts apply to QPLO amounts. For example, the rule that a plan loan offset amount is an eligible rollover distribution applies to a QPLO amount. In addition, guidance concerning the offering of a direct rollover of a plan loan offset amount, and guidance concerning special withholding rules with respect to plan loan offset amounts, apply to QPLO amounts. The proposed regulations provide examples to illustrate the interaction of the special rules for QPLOs with the general rules for plan loan offsets.

The proposed regulations provide that a distribution of a plan loan offset amount that is an eligible rollover distribution and not a QPLO amount may be rolled over by the employee (or spousal distributee) to an eligible retirement plan within the 60-day period allowed to rollover distributions. A QPLO amount may be rolled over by the employee (or spousal distributee) to an eligible retirement plan through the period ending on the individual’s tax filing due date—including extensions—for the taxable year in which the offset is treated as distributed from a qualified employer plan.

If a taxpayer to whom a QPLO amount is distributed satisfies the conditions in Section 301.9100-2(b) of federal regulations, the taxpayer will have an extended period past his  tax filing due date in which to complete a rollover of the QPLO amount, even if the taxpayer does not request an extension to file his or her income tax return but instead files the return by the unextended tax filing due date. For example, if, on June 1, 2020, Taxpayer A has an eligible rollover distribution of $10,000 that is a QPLO amount, she may be able to roll over the $10,000 amount as late as October 15, 2021. This automatic six-month extension applies if Taxpayer A timely files her tax return by April 15, 2021, (the due date of her return), rolls over the QPLO amount within the six-month period ending on October 15, 2021, and amends her return by October 15, 2021, as necessary to reflect the rollover.

The proposed regulations provide several special rules for purposes of determining whether a plan loan offset amount is a QPLO amount.

The NPRM will be published in the Federal Register on August 20. There is a 45-day period to submit comments or requests for a hearing.