@rpatel133 wrote:
I had the impression you can repay the amount you withdrew with no tax penalty as long as you return all of it within 3 years. That’s what all these 401k websites say for Covid hardship.
The "penalty" is not the tax. If a COVID related distribution then the additional 10% penalty for being under age 59 1/2 does not apply but the distribution is still taxed as ordinary income but that tax can be spread over 3 years.
If you return it then it is not taxed. The interview asks for how much was returned in 2020 and subtracts that from the taxable amount for 2020 - if 1/3 was paid back in 2020 then there is no 2020 tax.
**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
