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My wife's employment with a long-term employer was terminated by the company in Nov. 2000. At the time of termination she had a 401K account with a personal loan from the account. In 2001 she transferred the 401K into a rollover IRA. Now we've received two 1099R's from the trust company, one showing distribution code "G" (direct rollover to IRA) and one showing distribution code "L" (loan treated as deemed distribution).

When she transfered the account we didn't think about the outstanding loan implications (taxible income + 10% penalty). Is there any way we can recover from this (ie. pay back the loan amount into the rollover IRA) or do we write this off as a lesson learned?


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