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L1: disqualifiedI took out a loan on my 401k before I quit work that I cannot pay back, does this disqualifyme from setting up a sepp now.2011-02-16 19:03, By: slim, IP: []
L2: disqualifiedUsually your company requires you to pay back any loans when you quit. If you do not pay it back, they will usually reduce your balance as if they paid you, and then you repaid them, without any checks changing hands.The non-repayment should generate a 1099-R form which makes the loan taxable income, and probably eligible for the 10% early distribution penalty.HOWEVER, if you are, or will be, 55 by 12/31 of the year that you quit, then there is no 10% penalty. If your company permits it, you could take periodic distributions of varying amounts without any penalty, which would be better than locking yourself into a SEPP 72-T plan.Search this site for 401-K distributions.2011-02-16 19:37, By: dlzallestaxes, IP: []

L3: disqualifiedThere are several complex moving parts here for you to deal with.Make sure you understand what will happen with respect to the outstanding loan, and this depends on whether your loan went into default prior to quiting, in which case you may already have received a 1099R coded L for a deemed distribution and thatis reported taxable income, and probably subject to penalty.If you quit with no default but an outstanding balance and do not repay the loan within the notified time limit, then you will have a loan offset where your balance is reduced by the amount of the loan and interest due. If you then proceed to do an IRA rollover, you will get two 1099R forms, one coded G for the funds that were actually rolled over and one coded 1 or 7 showing the taxable loan default. You already received that money when you took out the loan but will now owe taxes on it. Note that if you had the money, you COULD complete a rollover of an offset distribution to avoid the tax bill, but if you had the money you probably would have repaid the loan. In any event, you will have taxes due which are expenses to consider if you start a 72t plan.As dlz pointed out, if the 401k plan will allow you periodic and flexible distributions until you are 59.5 AND you will have reached 55 in the year you quit, you can avoid the rollover and the 72t plan. So check that out before you act on any rollover. Note that in no event should you try to implement a 72t plan directly from the employer plan if the age 55 distributions will not fly. In that case, you would do the rollover and use the IRA for your 72t plan.2011-02-16 22:37, By: Alan S., IP: []