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1099-R Code L: Loan Treated as a Deemed Distribution

L

Your 401(k) loan defaulted, so the unpaid balance counts as a taxable distribution even though no new money reached you.

What the IRS instructions say

Official meaning, from the Instructions for Forms 1099-R and 5498 Used when a plan loan fails the requirements of section 72(p), typically by missed payments, and the outstanding balance is deemed distributed. The instructions specifically say NOT to use L for a plan loan offset.

Is it taxable, and does the 10 percent penalty apply?

Taxable in the year of default, plus the 10 percent additional tax if you are under 59 and a half (an L is usually paired with a 1 in that case). A deemed distribution generally CANNOT be rolled over, unlike a loan offset.

Worth knowing: L versus M matters: M (offset) can be rolled over until your tax filing deadline; L (deemed) cannot. If you left your job and the loan balance was subtracted from your payout, that should be M, not L.

Combinations you might see

Box 7 can carry two codes. With code L, the pairings mean:

If this code looks wrong

The IRS matches Box 7 against your return, so start with the payer: request a corrected 1099-R, which is the IRS's standing instruction for incorrect forms. No corrected copy by the end of February? The IRS can contact the payer for you, and Form 4852 substitutes as a last resort. Remember that an indirect 60-day rollover is correctly coded 1 or 7, because the payer cannot see the redeposit; direct rollovers should show G or H, as our rollover guide explains before the paperwork ever gets cut.

← All 1099-R Box 7 codes

Sources: IRS Instructions for Forms 1099-R and 5498; IRS Tax Topics 558 (early distributions), 413 (rollovers), and 154 (incorrect forms). Verified July 2026.

General educational information, not tax advice. Your distribution's taxation depends on your facts; consult a qualified tax professional. ClearChoiceRadar is not affiliated with the IRS or any government agency.