401K Cares Act withdrawal

Forum|Forum|5 years ago
November 22, 2020
3 replies
21 views

I took a withdrawal from my 401K under the Cares Act and now want to start sending it back. I spoke with Fidelity and as of 11/2020, they had no guidance and advised me to speak with a tax professional.

macuser_22

Alumni - Champ

See this IRS FAQ:

https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers

Q7. May I repay a coronavirus-related distribution?

A7. In general, yes, you may repay all or part of the amount of a coronavirus-related distribution to an eligible retirement plan, provided that you complete the repayment within three years after the date that the distribution was received. If you repay a coronavirus-related distribution, the distribution will be treated as though it were repaid in a direct trustee-to-trustee transfer so that you do not owe federal income tax on the distribution.

If, for example, you receive a coronavirus-related distribution in 2020, you choose to include the distribution amount in income over a 3-year period (2020, 2021, and 2022), and you choose to repay the full amount to an eligible retirement plan in 2022, you may file amended federal income tax returns for 2020 and 2021 to claim a refund of the tax attributable to the amount of the distribution that you included in income for those years, and you will not be required to include any amount in income in 2022. See sections 4.D, 4.E, and 4.F of Notice 2005-92 for additional examples.

There will be new forms to report the repayments assuming that you were qualified for a COVID-19 distribution in the first place.

**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.**

dmertz

Level 15

I suggest contacting Fidelity again. Fidelity should know whether or not the particular 401(k) will accept a repayment of a CRD. Most will but some will not, governed by the terms of the plan agreement regarding acceptance of rollovers. Such a repayment is to be treated the same as a direct rollover.

If the plan will not accept the rollover, you have the option to instead roll the distribution over to an IRA. You'll need to inform the IRA custodian (which could be Fidelity if you so choose) that the deposit is a repayment of a CRD so that the custodian can report it on Form 5498 with the correct coding in box 13c and repayment information in boxes 14a and b.