Expert: Allen - 2/14/2009

Question
I took a loan out to pay legal fees in a divorce in 2007, was paying the loan back until June 2008 when I changed jobs. I never heard anything from my 401k regarding the loan and have not received a 1099 (?) for the balance that was still owed on the loan. Should I have received one for 2008 to claim as income on my taxes?

Answer
Answer to your question is maybe.

The law says the loan is considered a taxable distribution at the end of the second quarter following the date it goes into default status. I'm guessing that the first payment missed occurred in July 2008. Therefore the loan is taxable as of December 31, 2008. Some plan administrators interpret this as a distribution in 2008. Others say it's a 2009 distribution.

I would check with your plan administrator.