QUESTION:
I had an outstanding TSP loan that I had to “settle” before I could have my funds rolled over into my Solo 401k (I chose not to repay it at the time). The loan has been “closed” via TSP and declared a taxable distribution, but I received the attached letter stating I have 60 days to potentially roll over the amount and avoid the current tax bill (and early withdrawal penalty). Am I able to do this using my Solo 401k? If so, how do I go about doing that?
ANSWER:
The attached letter from TSP is referring to the “loan offset rule.”
The loan offset amount will be taxed to you and subject to the 10% early distribution penalty if you’re under age 59 ½. However, you can avoid taxes and penalties by rolling over the loan offset amount to your solo 401k plan. You’ll have to come up with the cash from personal assets or a bank loan, but at least you have an opportunity to avoid taxes on the offset amount.
The letter incorrectly says that you will only have 60 days to accomplish the rollover; however, the Jobs Act of 2017 (P.L. 115-97) that was signed into law by President Trump on December 22, 2017, extended the 60-day period for rolling over the amount of an “offset” to a solo 401k plan to the tax filing deadline, including extensions, for the tax year in which the offset/distribution occurs.
