topic Cares Act 401K Payback in Retirement tax questions

Cares Act 401K Payback

Jon_Thomas — Sun, 24 Oct 2021 21:00:14 GMT

So I took a 10K hardship withdrawal from my 401k last year as part of the Cares Act allowing me to do so. I filed my taxes last year and got money back based on my intention of putting that 10K back before the allowable 3 years to do so. My plan was to put it all back by the end of 2021.

My question is, if I come a couple grand short of that repayment by Dec 31 2020 and I pay the balance by the end of January 2022, is that ok? I'm really looking to see if I have to completely pay the 10K back by Dec 31st 2021 or do I have up until I pay my taxes in 2022 (or sooner) to put it all back?

Appreciate the feedback in advance!

Re: Cares Act 401K Payback

GeorgeDenseff — Sun, 24 Oct 2021 22:33:38 GMT

It is your money and you can decide when and how much to pay back. You will owe taxes for 2021 on the amount not paid back on December 31, 2021.

Re: Cares Act 401K Payback

TomD8 — Mon, 25 Oct 2021 16:45:49 GMT

Please read the answers to Q6 and Q7 in this IRS reference. This should answer your questions.

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

Re: Cares Act 401K Payback

Opus 17 — Tue, 26 Oct 2021 01:02:25 GMT

Check your dates because in some places you say 2020 instead of 2021.

Here is what is supposed to happen. You make the withdrawal in 2020, you get a 1099-R for 2020, you report the withdrawal and pay income tax on your 2020 return. Then, when you make the repayment, you file an amended 2020 return to report the repayment and get a refund of the tax you paid.

In your case, if you make a partial repayment in 2021, you could file an amended return right away. Then if you make a further repayment in 2022, you would file a second amended tax return. I would probably not do this, due to the length of time it takes to process and amended return and the difficulty of filing a second amended return after a first amended return. So I would hold off filing any amended tax return until you have repaid all the money, or you have decided that you repaid all you feel like repaying.

If you did not report the withdrawal on your 2020 tax return and pay tax, you can expect to get a compliance letter from the IRS, this is going to cause you additional issues.