I took a 401k distribution due to covid, what coun...
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amie591
New Member

I took a 401k distribution due to covid, what counts as repayment? I used some of that $$ to pay a 401k loan does that count? What abt future contributions from payck?

i took a 401k distribution due to covid, what counts as repayment? I used some of that $$ to pay a 401k loan does that count?
What abt future contributions from paycheck, does that count?
9 Replies
macuser_22
Level 15

I took a 401k distribution due to covid, what counts as repayment? I used some of that $$ to pay a 401k loan does that count? What abt future contributions from payck?

No.  Repayment means to replace the money that was distributed because of COVID to the same account within 3 years as if the money was never removed.

 

The COVID related distribution  is reported o

The TurboTax 8915-E should be available on Feb. 25 (pending IRS approval by then).

The IRS just finalized the form on Feb 11. TurboTax must now submit their 8915-E software to the IRS for testing to be sure that both TurboTax and the IRS e-file computer are compatible. That process usually takes the IRS 2-3 weeks for approval to release the new form to the public.

See below for a link to sign up for an email when the form is ready.

This form is necessary to report COVID related distributions from IRA's and other retirement plans to report the distribution, pay it back over 3 years or spread the tax over 3 years.

A COVID-19 related distribution is reported on a new 8915-E form.

See this TurboTax FAQ to sign up for an e-mail when the form is ready.
https://ttlc.intuit.com/community/tax-topics/help/why-am-i-getting-getting-a-10-penalty-on-my-1099-r... a 8915-E form.

 

 

**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.**
amie591
New Member

I took a 401k distribution due to covid, what counts as repayment? I used some of that $$ to pay a 401k loan does that count? What abt future contributions from payck?

Then what qualifies as repayment?

 

example, I upped my contribution amount that way I pay it back, does that not count?

dmertz
Level 15

I took a 401k distribution due to covid, what counts as repayment? I used some of that $$ to pay a 401k loan does that count? What abt future contributions from payck?

New contributions are not a repayment either.  Repayment is a rollover of the money that was distributed to you as a Coronavirus Related Distribution, putting back the cash that you took out.  Of course you will have spent the original cash that that was distributed, so you'll have to substitute other cash from your savings to make the repayment; cash is fungible.

fanfare
Level 15

I took a 401k distribution due to covid, what counts as repayment? I used some of that $$ to pay a 401k loan does that count? What abt future contributions from payck?

@dmertz 

I still don't understand why it has to be to the same account.

All IRAs are equivalent.

Suppose you close that IRA account. Repayment is disallowed?

Suppose it is a 401k but you leave and the employer closes your 401k.

macuser_22
Level 15

I took a 401k distribution due to covid, what counts as repayment? I used some of that $$ to pay a 401k loan does that count? What abt future contributions from payck?


@fanfare wrote:

@dmertz 

I still don't understand why it has to be to the same account.

All IRAs are equivalent.

Suppose you close that IRA account. Repayment is disallowed?

Suppose it is a 401k but you leave and the employer closes your 401k.


I don't think anything was said about the same "account".  You only have one Traditional IRA that is the aggregate total of all Traditional IRA accounts.   Any Traditional IRA account is the same IRA.

**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.**
fanfare
Level 15

I took a 401k distribution due to covid, what counts as repayment? I used some of that $$ to pay a 401k loan does that count? What abt future contributions from payck?

@macuser_22 

He specifically did and you yourself also used the words "same account" in your first reply to this thread.

macuser_22
Level 15

I took a 401k distribution due to covid, what counts as repayment? I used some of that $$ to pay a 401k loan does that count? What abt future contributions from payck?

The subject of this thread was a 401(k), not an IRA. A 401(k) must be paid back to THAT 401(k) plan.

**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.**
AinSeattle
Level 2

I took a 401k distribution due to covid, what counts as repayment? I used some of that $$ to pay a 401k loan does that count? What abt future contributions from payck?

This is the way I understand it and YMMV. This is an example only and is not legal or tax advice!

 

It might be easier to understand using numbers as an example.

 

$750 is taken out of account A. Leaving a balance of $250.

At the three year deadline, $750 must have been returned to A so that all of the money removed brings the balance back up to the original $1000 in the account.

If account A has additional contributions taken from wages (say $10 per month for a total of $120 for each year), that isn't considered repayment.

At the end of three years, the total back in A has to be $250 balance after covid withdrawal + $750 covid withdrawal repayment + $120 yr 1 additional contribution + $120 yr 2 additional contribution +$120 yr 3 additional contribution for a total of $1360.

 

If the entire $1000 is removed from A for account closure, then the total distribution is $1000.

If A is shut down and rolled over to another tax deferred roll-over eligible account (B), then the original $750 gets returned to B. Hence B better have $1360 of tax deferred money. Either way, the amounts have to be made whole as if the money was never removed.

 

Simplistically, money that gets removed EARLY from a tax deferred account, is a taxable distribution. With covid, that is being "paused" to allow money to be used and then returned within the deadline.

dmertz
Level 15

I took a 401k distribution due to covid, what counts as repayment? I used some of that $$ to pay a 401k loan does that count? What abt future contributions from payck?

Repayment to the distributing IRA is required for repayment of an RMD pursuant to IRS Notice 2020-51, not to repayment of a CRD.

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