CARES act 401k withdrawal / indirect IRA rollover

[taxesarefun4]

I had a qualified CARES act 401k withdrawal over the summer (hours were reduced at work) and later decided I did not need the funds for living expenses (I qualified for unemployment, among other things) and so I completed an indirect rollover of the funds to my traditional IRA.  Can someone confirm that this does not trigger a taxable event and I do not need to report the funds as taxable income or repay it over the next 3 years?  Thank you!

[macuser_22]

Yes you have 3 years to pay it back.  That is reported on a new 8915-E form that is not yet available and there is  no estimated release date since the form is still in the draft state at the IRS.  There is no telling how long it will take the IRS to make the electronic form available.

The draft form is here:

https://www.irs.gov/pub/irs-dft/f8915e--dft.pdf

https://www.irs.gov/pub/irs-dft/i8915e--dft.pdf

[taxesarefun4]

Hi,

Thanks for the reply and the link to the draft form.  My question, however, was that I don't think I should have to pay it back to the same 401k plan, as it was subsequently indirectly rolled over to a traditional IRA (ie. it's already been "paid back").  There has been no taxable event (the funds simply went from a tax-deferred traditional 401k to a tax-deferred traditional IRA).  I suppose my only uncertainty lies in that the funds were repaid to a different account, but I wouldn't think that matters since they're essentially identical accounts from a tax perspective.  If anyone has thoughts on my reasoning would appreciate it.  Thanks again!

[taxesarefun4]

Does anyone have any other thoughts on this scenario?  Funds were paid back to a traditional IRA instead of the same 401k that they came from (via indirect rollover--with proper form indicating it as an indirect rollover).  My thinking is it doesn't make any difference from a tax perspective, but not sure if the IRS would have some language indicating the pay back has to happen to the same account?  Thanks!

[Irene2805 · Accepted solution]

You are correct -- The funds do not have to be returned to the same retirement account.  The funds withdrawn from your 401k can be rolled over to a traditional IRA. 

HOWEVER, since this was a "manual" rollover, and not an institution-to-institution rollover, the transfer has to be made within 60 days of the withdrawal to be considered a nontaxable event.   [An exception to this is for those taking the RMD.] 

If the deposit to the IRA took place after 60 days of the withdrawal, since this was originally a COVID-related withdrawal, we will have to wait until the IRS finalizes heir instructions related to disaster distributions.

[taxesarefun4]

Thank you, @Irene2805 !!  The funds were rolled over in-full within 60 days.

Sorry but one other question if you have thoughts.  Do you know how this would be reflected in my tax return?  Presumably the 401k provider will send me a tax form indicating that I took a coronavirus hardship withdrawal and not show any information about me repaying it (since I repaid it to a different institution and different account).  I will have (whenever it's available) a form from the IRA provider that shows the rollover, but I'm just not sure if this will create any sort of mismatch with the tax form from the 401k provider not showing evidence that it's been repaid?

[macuser_22]

There are no IRS guidelines on this.  Since this was a 60 day rollover it could be reported just as any other 60 day rollover is reported simply checking the rollover box in the 1099-R interview.

However, since the only reason that you were able to have the distribution at all was because it was COVID related. 

Whether that requires you to report it on a 8915-E form or not is not clear since the only thing that that form would do is report it as COVID related and has nothing to do with the tax treatment, but to get the distribution in the first place, you had to certify to your employer that it was COVID related. 

To be safe, I would wait for the 8915-E form.

[brf]

Program doesn't calculate taxable amount properly. Shows a taxable amount even if complete rollover box checked on 1099R Worksheet

[VolvoGirl]

Where is it showing taxable?  If you are looking at a summary screen or review screen those show the full amount as income and lump a lot of stuff together. You need to check the actual 1040 form and make sure it's right.

[brf]

It shows the amount as taxable on the 1040

[macuser_22]

Do not check it on the worksheet.   Direct form entries will void the accuracy guarantee because only the interview mode will correctly link forms.     Your are totally on your own to know exactally what you are doing in  the forms mode.

I suggest totally deleting the 1099-R and re-enter this way.

Enter a 1099-R here:

Federal Taxes,
Wages & Income
I’ll choose what I work on (if that screen comes up),
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).

OR  Use the "Tools" menu (if online version under My Account) and then "Search Topics" for "1099-R" which will take you to the same place.

Be sure to choose which spouse the 1099-R is for if this is a joint tax return.
Be sure to pick the correct 1099-R type: Standard 1099-R, CSA-1099-R, CSF-1099-R, RRB-1099-R.

If this was a rollover, answer the question that you moved the money to another retirement account (can be the same account). The screen will open up with choices of where it was moved.

(If box 7 has a code “G” it will automatically be a trustee-to-trustee rollover).

[NOTE: When you get to the "Your 1099-R Entries" screen where you can add another 1099-R, use "continue" to keep going as there are additional interview questions after that screen in most cases. You can always return as shown above.]

It will show as income on the summary screen which shows gross income, not taxable income.

The income will be reported on line 4a on the 1040 form with the word “ROLLOVER” next to it if it was a rollover.

The taxable amount will go on line 4b.  In the case of a rollover, that amount will be zero.

[brf]

I deleted the form and created a new one using easy step and had the same problem - 5b showed taxable income

[brf]

I am using desktop Mac program

[macuser_22]

What code is in box 7?

Is the IRA/SEP/SIMPLE box on your 1099-R checked?

Did you answer yes to the RMD question if over age 70 1/2?

[brf]

Dist code: 7

IRA box not checked. This is the return of a distribution under the terms of the CARES act which suspended RMD