topic I took out $60000 from IRA to payoff a car loan. Now I would like to return the money to IRA. Would I still incur tax on the $60000? in Retirement tax questions

I took out $60000 from IRA to payoff a car loan. Now I would like to return the money to IRA. Would I still incur tax on the $60000?

steve-choi — Mon, 30 Nov 2020 17:44:16 GMT

Re: I took out $60000 from IRA to payoff a car loan. Now I would like to return the money to IRA. Would I still incur tax on the $60000?

DoninGA — Mon, 30 Nov 2020 17:49:21 GMT

Yes. The withdrawal from the IRA was a taxable distribution. You will receive a Form 1099-R from the plan administrator in January 2021 for any withdrawals made in 2020. The tax data from the Form 1099-R is to be entered on your tax return.

Re: I took out $60000 from IRA to payoff a car loan. Now I would like to return the money to IRA. Would I still incur tax on the $60000?

DoninGA — Mon, 30 Nov 2020 17:55:33 GMT

NOTE - if the funds are returned to the IRA within 60 days from the date of withdrawal there will not be taxable distribution.

Re: I took out $60000 from IRA to payoff a car loan. Now I would like to return the money to IRA. Would I still incur tax on the $60000?

macuser_22 — Mon, 30 Nov 2020 18:02:57 GMT

Not if is has been 60 days from the date of the distribution unless the need was COVID-19 related in one of the following ways, in which case you have up to 3 years to replace the money ot spread the tax over 3 years.

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

Q3. Am I a qualified individual for purposes of section 2202 of the CARES Act?

A3. You are a qualified individual if –

You are diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention;

Your spouse or dependent is diagnosed with SARS-CoV-2 or with COVID-19 by a test approved by the Centers for Disease Control and Prevention;

You experience adverse financial consequences as a result of being quarantined, being furloughed or laid off, or having work hours reduced due to SARS-CoV-2 or COVID-19;

You experience adverse financial consequences as a result of being unable to work due to lack of child care due to SARS-CoV-2 or COVID-19; or

You experience adverse financial consequences as a result of closing or reducing hours of a business that you own or operate due to SARS-CoV-2 or COVID-19.

Re: I took out $60000 from IRA to payoff a car loan. Now I would like to return the money to IRA. Would I still incur tax on the $60000?

VolvoGirl — Mon, 30 Nov 2020 18:07:11 GMT

Did they take any withholding out of the withdrawal? If you do replace it within the 60 days you need to also replace any withholding taken out or the withholding itself will be be a distribution and taxable.

Re: I took out $60000 from IRA to payoff a car loan. Now I would like to return the money to IRA. Would I still incur tax on the $60000?

dmertz — Mon, 30 Nov 2020 18:34:05 GMT

It seems that it might be difficult to establish that someone paying off a $60,000 car loan has experienced adverse financial consequences, so it seems that to qualify as a CRD eligible to be repaid within 3 years the individual or the individual's spouse would have to have actually been diagnosed with SARS-CoV-2 or COVID-19 by an approved test.

Re: I took out $60000 from IRA to payoff a car loan. Now I would like to return the money to IRA. Would I still incur tax on the $60000?

macuser_22 — Mon, 30 Nov 2020 18:42:32 GMT

I think it would depend on the circumstances, being laid off of a high paying job because of a COVID-19 shutdown might be a valid reason to get the loan paid off rather than loose the car.

Re: I took out $60000 from IRA to payoff a car loan. Now I would like to return the money to IRA. Would I still incur tax on the $60000?

fanfare — Tue, 01 Dec 2020 00:24:45 GMT

It doesn't matter what you do with your distribution.

Re: I took out $60000 from IRA to payoff a car loan. Now I would like to return the money to IRA. Would I still incur tax on the $60000?

Opus 17 — Tue, 01 Dec 2020 14:37:32 GMT

If it has been less than 60 days, you can reverse the distribution and replace the money. Contact the plan trustee and let them know you want to do this. You will not receive a 1099R and you will not pay any taxes. However, if the trustee withheld tax on the distribution, you must re-pay the entire amount even if you have to borrow it from somewhere else. You will get that withholding back in your refund when you file your tax return, but if you don’t put the entire amount back now, any remainder will be treated as a taxable distribution.

If it has been more than 60 days and this was not a coronavirus related distribution, then you cannot replace the money. The withdrawal will be fully taxable, and any money that you want to put in the IRA now will be treated as a separate transaction subject to the normal rules for IRA contributions (such as the income limits on deductible IRAs and the annual contribution maximum).

If it has been more than 60 days and you can certify that you took the distribution due to a coronavirus related hardship, then you have three years to return the money. The distribution will be reported on a form 1099R and you must include it on your income tax return. You will then be asked questions related to the CARES act and you will have the opportunity to report to the IRS that you have returned part or all of the distribution. Any part that you did not return will be taxable, but if you return the remainder of the distribution within three years, you can file an amended return to get that tax back as well.