I need help regarding the distribution code for an individual who incurs a deem distribution and is over age 59 1/2. In consulting with two people in my office, one of our experts says use Code 7 and the other one says use Code L. Any advice or arguments someone can lend on this subject would be appreciated.

Thank you !!!

Becca,

Code L by itself. If under 59.5 then Code L with a 1. See IRS 1099-R Instructions on Page R-5....pretty clear.

Maybe one of the experts mixed up code 7 with Box 7.


TAG

Thank you so much TAG.

Becca

i was under the impression that after 59.5, the loan deemed distribution is a loan offset because it is not required to be paid back and reduced the participant's accrued benefit, hence code 7, not L. No?

Still Code L. See page 11 of the instructions at http://www.irs.gov/pub/irs-pdf/i1099r.pdf

If you use the in-service wihtdrawal provision to repay the loan, then this is considered to be an offset, not a deemed distribution. That is why I still think it is code 7. If you are over 59.5 then you do not have to repay the loan, then how could it be a deemed distribution, whereby the loan stays on the books and is required to be repaid?

That is not my impression. I thought that deemed versus offset was based on factors independent of age.

I agree with WDIK...hence the distinction that Code 1 must be added is applicable, so that the 10 percetn pealty applies

Legort69:

I am confused on the following:

Why do you think because someone is over 59 1/2 and deemed that they are not liable for paying back their loan?

It doesn't matter what their age is, if they are deemed and have not retired or terminated, they are liable for the unpaid balance.

A deem can become a loan offset once a distributable event, e.g., termination, retirement, death, takes place.

I think there are documents that say something like "if someone with a deemed loan distribution satisfies a distribution requirement of the plan [e.g. age 59 1/2, and the plan permits distributions at 59 1/2] then the deemed loan distribution is considered a regular distribution."

Some people may think that you can read that into a document that doesn't explicitly say that, and some people may think you can do it even if the document doesn't contain a provision at all that would be statutorily permitted. I disagree.