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Odenton_Doug
Level 2

Can I count my employee contributions to a qualified retirement plan as repayment on a COVID-19 Distribution ?

I was laid off in 2020 due to Covid-19 ,  I took a distribution from my qualified Retirement plan (  this is a rollover IRA from previous employment )    I have new employment in late 2020 and am able to make employee contributions to a retirement plan.  Can I count these as Repayment of the COVID-19 Distributions  or do I need to make the repayment back to the original plan.    lets say that I took 30K out and can repay 10K  using a combination of the employee contribution and my after tax savings...      Then  likewise -can i use the remainder of the  2021 year +2022 time before filing to "repay the 2021 portion"  and ditto for 2023.   Or does all of the repayment need to be made using after tax dollars...       I could in theory maximize my pre tax retirement withholdings to meet the objective of repayment of all the COVID-19 Distribution.    

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Accepted Solutions
SamS1
Expert Alumni

Can I count my employee contributions to a qualified retirement plan as repayment on a COVID-19 Distribution ?

I don't think that will work. Your current retirement plan contribution amounts are coming out pre-tax.  In turn, if you want to use those also to decrease the amount of your taxable Covid distribution, you would be double dipping by getting deferred tax treatment on both the lowering of your taxable wages up front and decreasing the taxable amount of your Covid distribution.  In order to gain the benefit of not including the taxable distribution in income, you would need to use after tax dollars.  

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DawnC
Expert Alumni

Can I count my employee contributions to a qualified retirement plan as repayment on a COVID-19 Distribution ?

That is correct.  Your pre-tax contributions to another account are not going to count as a recontribution of the covid-related distribution.  The repayments do not have to come from the same bank account that your distribution was deposited to.    

 

You’ll have 3 years to pay back the funds you withdrew, without the amount impacting that year’s cap on contributions, and if you pay back the amount to any qualified plan within that time, you’ll be able to claim a refund on those taxes.     

 

The CARES Act provides that any part of a COVID-19-related distribution is eligible for tax-free rollover treatment to be recontributed to a qualified plan within three years of receipt and therefore excluded from income.  Any amount recontributed is treated as a direct tax-free rollover where eligible or as an indirect rollover with the typical 60-day requirement adjusted to three years.  A recontribution is not subject to the one-rollover-per-year limitation.  

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3 Replies
SamS1
Expert Alumni

Can I count my employee contributions to a qualified retirement plan as repayment on a COVID-19 Distribution ?

I don't think that will work. Your current retirement plan contribution amounts are coming out pre-tax.  In turn, if you want to use those also to decrease the amount of your taxable Covid distribution, you would be double dipping by getting deferred tax treatment on both the lowering of your taxable wages up front and decreasing the taxable amount of your Covid distribution.  In order to gain the benefit of not including the taxable distribution in income, you would need to use after tax dollars.  

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Odenton_Doug
Level 2

Can I count my employee contributions to a qualified retirement plan as repayment on a COVID-19 Distribution ?

That is what I was thinking.  We sometimes think that what is sitting in my bank account is taxed dollars when in this case it has "CRD untaxed dollars in it "    I was able to talk to someone at IRS yesterday that poked into all the Knowledge articles on this as well..  her conclusion was similar - not perfect but indicated that it needed to go back into that Roll-over IRA to be counted as Repayment...   I am pretty clear that it can go back into another Qualified Retirement Account but it needs to come from the checking account from that balance of CRD pre-taxed dollars and not pre-tax employee contributions.    Thanks for the Validation.   

DawnC
Expert Alumni

Can I count my employee contributions to a qualified retirement plan as repayment on a COVID-19 Distribution ?

That is correct.  Your pre-tax contributions to another account are not going to count as a recontribution of the covid-related distribution.  The repayments do not have to come from the same bank account that your distribution was deposited to.    

 

You’ll have 3 years to pay back the funds you withdrew, without the amount impacting that year’s cap on contributions, and if you pay back the amount to any qualified plan within that time, you’ll be able to claim a refund on those taxes.     

 

The CARES Act provides that any part of a COVID-19-related distribution is eligible for tax-free rollover treatment to be recontributed to a qualified plan within three years of receipt and therefore excluded from income.  Any amount recontributed is treated as a direct tax-free rollover where eligible or as an indirect rollover with the typical 60-day requirement adjusted to three years.  A recontribution is not subject to the one-rollover-per-year limitation.  

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

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