IRS Finalizes Rules for Renewal of Qualified Plan Loans
In TD 9937, the IRS finalized the proposed rules regarding changes to Sec. 401 (c) by Section 13613 of the statute known as the Tax Cuts and Jobs Act (TCJA), PL 115-97, which provides for an extended rollover period for qualifying plan loan compensation. The final regulation adopts the draft regulation published in August (REG-116475-19) with a single change, which delays the date of entry into force.
Second. 72 (p) (1) provides that if, in a taxation year, a member or beneficiary receives (directly or indirectly) an amount in the form of a loan from a qualifying employer plan (defined in Section 72 (p) (4) (A)), this amount will be considered to have been received by the individual as a distribution from the plan. For some plan loans, Sec. 72 (p) (2) provides an exception to the general treatment of loans as distributions. For this exception to apply, the loan must generally meet three conditions:
- The terms of the loan must meet the limits of the loan amounts under Sec. 72 p) (2) (A) ($ 50,000);
- The loan must be repayable within five years; and
- The loan must require substantially level amortization over the life of the loan.
Section 13613 of the TCJA amended s. 402 (c) (3) to provide for an extended rollover deadline for Qualifying Plan Loan Compensation Amounts (QPLOs). Any portion of a QPLO amount (up to the full amount) may be transferred to a qualifying pension plan on or before the due date of the individual’s income tax return (including any extensions) for the tax year in which offsetting takes place.
Regs. Second. 1.402 (c) -3 takes into account changes to QPLO’s rolling rules. The regulations confirm that a QPLO is a type of loan compensation plan; therefore, most of the general rules for plan loan offset amounts apply to QPLO amounts. In addition, the rules of O. Reg. Second. 1.401 (a) (31) -1, Q & A-16 (which explains the offer of a direct rollover of a plan loan compensation amount), and O. Reg. Second. 31.3405 (c) -1, Q & A-11 (which contains special withholding rules for plan loan netting amounts), which apply to plan loan netting amounts in general, also apply to QPLO amounts. The final rule provides examples to illustrate the interaction of the special rules for QPLOs with the general rules for plan loan offsets.
Complies with Reg. Second. 1.402 (c) -2, Q & A-9, the final rule provides that a distribution of a plan loan netting amount that is a qualifying rollover distribution and not a QPLO amount may be transferred by the employee (or distributed spouse) to an eligible person. retirement plan within the 60-day period defined in Sec. 402 (c) (3) (A).
In accordance with Sec. 402 (c) (3) (C), the final regulations provide that a distribution of a plan loan compensation amount that is a qualifying rollover distribution and a QPLO amount may be transferred by the employee (or spouse distributed) to an eligible person. pension plan during the period ending on the due date of the individual’s income tax return (including any extensions) for the tax year in which the compensation is considered to be distributed by an employer plan eligible.
A taxpayer with a qualifying rollover distribution that is a QPLO amount may transfer any portion of the distribution to a qualifying retirement plan, including another qualifying retirement plan (if that plan allows for rollovers) or an IRA, prior to the date taxpayer limit for tax return. for the year of distribution, including extensions.
The final regulations also contain definitions of the Plan Loan Compensation Amount, QPLO Amount, and Qualifying Employer Plan Amount, as well as special rules for QPLO determinations when a termination has occurred.
In finalizing the draft regulation, the IRS accepted part of the comment it received from the sole commentator to postpone the effective date of the regulation in order to give plan administrators and taxpayers more time to think about themselves. conform.
Therefore, these regulations apply to plan loan compensation amounts, including eligible plan loan compensation amounts, treated as distributed on or after January 1, 2021. Therefore, the rules in O. Reg. Second. 1.402 (c) -3 will first apply to a Form 1099-R 2021, Distributions from pensions, annuities, retirement or profit sharing plans, IRAs, insurance contracts, etc., which must be filed and provided in 2022.
Taxpayers (including a Form 1099-R filer) may also apply these regulations to schedule loan offset amounts, including QPLO amounts, treated as distributed on or after August 20, 2020, when the proposed regulation was been published.
– Sally P. Schreiber, JD, ([email protected]) is a JofA editor-in-chief.