@FlaxSeedQ wrote:
"Regular contributions from your paycheck does not count towards repayment. Only funds outside of the payroll situation would count. "
What about a contribution using funds from another retirement account? For example, early withdrawal of pension funds paid as a lump sum of $20K, which must be rolled over within 60 days to avoid penalties. Would these funds be able to used towards repayment?
A rollover does not repay a COVID distribution, because a rollover is a tax-free transaction. To repay a COVID distribution, you have to use money that you have previously paid tax on. This could come from a retirement account withdrawal, but only if you withdraw the money and pay the income tax on it (plus the 10% penalty if you are under age). Or you will repay the distribution from savings or your paycheck after-tax, both of which are money that was already taxed in the past.
It really doesn't make financial sense to repay one pre-tax retirement account by taking a taxable distribution from another retirement account, especially if you have to pay the 10% early withdrawal penalty.
