As we mentioned in our prior article regarding the passing of the Tax Cuts and Jobs Act (“Act”), retirement plans were affected by the new law, particularly the period to repay a plan loan offset.
The new rule only applies in the case of an individual who severs employment or when a retirement plan is terminated. For employees unable to pay off any outstanding loan balance right away, the loan balance is considered a distribution and their account balance is reduced by that amount. In addition, the loan balance becomes taxable to the participant.
Individuals previously had 60 days to make a payment to the rollover account that received the distribution in order to avoid paying income tax on the unpaid loan balance. The new law extends this period to the due date of the employee’s federal tax return (including extensions) for the year in which the loan is offset.
For instance, under the old law, an individual taking a distribution on January 1, 2018 would have until March 2, 2018 to contribute the amount of the loan offset. The Act allows that individual until April 2019 (October 2019 if an extension is filed) to cover the offset amount.
If you have any questions regarding the changes to retirement plan loans, please contact your Nyhart consultant.