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tobe2017
Level 1

I took out a COVID-related distribution out of each of my two 403(b) accounts. My usual biweekly contributions is being deducted from my paycheck (pre-tax). I intend on paying back the distribution th

I took out a COVID-related distribution out of each of my two 403(b) accounts. My usual biweekly contributions is being deducted from my paycheck (pre-tax). I intend on paying back the distribution th
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Opus 17
Level 15

I took out a COVID-related distribution out of each of my two 403(b) accounts. My usual biweekly contributions is being deducted from my paycheck (pre-tax). I intend on paying back the distribution th


@tobe2017 wrote:

Thank you very much. What confuses me is to that I would need to return the distribution with after tax money? Especially since I would get taxed again upon starting to withdraw that money in retirement?


If you take a distribution which is later returned, the distribution is removed from your taxable income, as if the distribution never happened.  Since the returned distribution is not taxed as income, you can't take a deduction for the return, because you can't subtract an item from your taxable income that was never included in your taxable income to begin with.   

 

 

 

 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*

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6 Replies
Critter-3
Level 15

I took out a COVID-related distribution out of each of my two 403(b) accounts. My usual biweekly contributions is being deducted from my paycheck (pre-tax). I intend on paying back the distribution th

Your question was cut off twice ... return and complete your query. 

tobe2017
Level 1

I took out a COVID-related distribution out of each of my two 403(b) accounts. My usual biweekly contributions is being deducted from my paycheck (pre-tax). I intend on paying back the distribution th

Sorry, this was the full post:

 

I took out a COVID-related distribution out of each of my two 403(b) accounts. My usual biweekly contributions is being deducted from my paycheck (pre-tax). I intend on paying back the distribution that I took from my 403(b) accounts. However, I am being told that I am unable to contribute this as a pre-tax deduction from my payment, such as by increasing my monthly automatic contribution. This doesn’t seem to make sense to me that I would contribute after-tax money to recontribute to a pre-tax retirement account as that is a) counterintuitive to the concept of not paying taxes on the COVID-related distribution and b) I would then get taxed again on that recontributed post-tax money in retirement. Any advice?

Opus 17
Level 15

I took out a COVID-related distribution out of each of my two 403(b) accounts. My usual biweekly contributions is being deducted from my paycheck (pre-tax). I intend on paying back the distribution th

A return of your contributions is not tax deductible because you won't be paying tax on the money you withdraw.  You take the money out temporarily and don't pay tax, so the return is not deductible.  In fact, the return is not a "contribution" at all, it is a return of a prior distribution.

 

Normally,  if you want to return a distribution, you must do it within 60 days, so the issue of tax doesn't come up.  With a COVID withdrawal, you can spread the tax out over 3 years (if you choose) and you can make the return for up to 3 years.  That might mean you pay tax on part or all of the distribution in year 1, but when you return it in year 2 or 3, the tax you paid in year 1 will be reversed.  But it will all work out in the end.  Any part of the distribution that you end up returning will not be taxed once everything is settled. 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
Opus 17
Level 15

I took out a COVID-related distribution out of each of my two 403(b) accounts. My usual biweekly contributions is being deducted from my paycheck (pre-tax). I intend on paying back the distribution th

By the way, you must very specifically arrange the "return" with the plan trustee.  It is not a regular contribution, and regular contributions can't be counted as returns.  If you want to use your weekly or monthly contribution funds to pay the return, you will need to stop the contributions, collect the money in your paycheck (after tax), and send a separate payment to the plan trustee using their specific procedure for a COVID return.  (It may require a special paper form or a special election online.)

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
tobe2017
Level 1

I took out a COVID-related distribution out of each of my two 403(b) accounts. My usual biweekly contributions is being deducted from my paycheck (pre-tax). I intend on paying back the distribution th

Thank you very much. What confuses me is to that I would need to return the distribution with after tax money? Especially since I would get taxed again upon starting to withdraw that money in retirement?

Opus 17
Level 15

I took out a COVID-related distribution out of each of my two 403(b) accounts. My usual biweekly contributions is being deducted from my paycheck (pre-tax). I intend on paying back the distribution th


@tobe2017 wrote:

Thank you very much. What confuses me is to that I would need to return the distribution with after tax money? Especially since I would get taxed again upon starting to withdraw that money in retirement?


If you take a distribution which is later returned, the distribution is removed from your taxable income, as if the distribution never happened.  Since the returned distribution is not taxed as income, you can't take a deduction for the return, because you can't subtract an item from your taxable income that was never included in your taxable income to begin with.   

 

 

 

 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*

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