Unfortunately, the distribution cannot be rolled back into the IRA because the 60-day rollover period has passed; it is a taxable distribution. The rollover deadline can be waived for certain situations that are beyond a taxpayer’s control that prevented completion of an intended rollover, such as a serious illness, a mistake by the financial institution, or a casualty event. However, because the funds were used as a loan, the IRS won’t grant an extension (see, for example, Letter Ruling 200446030).
Test for determining deductibility of IRA deductions. Active participants in employer retirement plans are subject to IRA deduction phase-out rules if adjusted gross income exceeds certain threshold.