2018 Changes to Outstanding Employee Retirement Plan Loans

 

The tax law that was passed by Congress and signed into law by President Trump on December 22, 2017 called the Tax Cuts and Jobs Act (H.R. 1) made changes to the the treatment of outstanding employee retirement plan loans. Below is the UPDATED information.

Generally, employees who have taken out retirement plan loans while working for an employer have a certain amount of time to repay the loans otherwise they are considered to be a distribution from the plan subject to income tax and possibly a 10% penalty if not repaid or rolled over within 60 days of an event that requires immediate repayment such as termination of employment.

Effective for tax years 2018 and later, an employee who has taken out a retirement plan loan has until the due date (including extensions) for filing their tax return for that tax year to contribute the outstanding loan balance to an IRA and avoid having the loan amount treated as a taxable distribution. This new law applies to employees whose retirement plans terminate or who experience a severance from employment while having an outstanding loan amount.