1099-R Code M1

[15740]

I have a client with many health problems and he took $25,000 from his 401K.  He received a 1099-R showing the $25,000 and with M1 code.  He says it's a loan and it shouldn't go in income.  But, from everything I'm reading - he doesn't have a payment plan set up, etc.  He did leave the company, so don't know if that makes a difference?  The money was taken out, he says, to pay medical bills.  But, i'm not sure that 100% was used for just medical.  Any ideas, I would sure appreciate it.  

Thanks!

jean

[sjrcpa]

It may have been a loan when he first got the money. But when he left the company without repaying, it became a deemed distribution (I may have the wrong term) qualified plan offset (deemed distribution) which is what Code M is. As to how much he spent on medical expenses, you'll need to ask him if you're hoping for the medical expense exception to the penalty.