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IRS states repayment of CARES withdrawals are treated as a rollover to a qualified retirement account. Can I pay the money back to my IRA if withdrawn from my 401K plan?

Forum|Forum|4 years ago
March 5, 2022
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I see where someone else asked this question in 2021 but no answer as to whether it creates a taxable event.

TurboTax Online

Best answer by DawnC

Yes, you can repay the funds to any qualified retirement account.

The CARES Act provides that any part of a COVID-19-related distribution is eligible for tax-free rollover treatment to be recontributed to a qualified plan within three years of receipt and therefore excluded from income. Any amount recontributed is treated as a direct tax-free rollover where eligible or as an indirect rollover with the typical 60-day requirement adjusted to three years. A recontribution is not subject to the one-rollover-per-year limitation.

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FangxiaL

If you took the money out in 2020 and before 12/31/2020, you certainly can put all the money back within three years without paying any penalty and taxes. But many taxpayers (including myself) are paying it back 1/3 every year in 2021, 2022, and 2023 to avoid taxation. Many others decide to pay tax on 1/3 each year without putting the money back.

If you did not do it last year, you can go back to amend your 2020 tax return to indicate that you have paid it back.

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sbmentlickAuthor

thank you, I understand I can pay it back but instead of paying back to the 401K where I withdrew it from (it was a Covid withdrawal) - can I put it into my IRA instead?

DawnCAnswer

Employee

Yes, you can repay the funds to any qualified retirement account.

The CARES Act provides that any part of a COVID-19-related distribution is eligible for tax-free rollover treatment to be recontributed to a qualified plan within three years of receipt and therefore excluded from income. Any amount recontributed is treated as a direct tax-free rollover where eligible or as an indirect rollover with the typical 60-day requirement adjusted to three years. A recontribution is not subject to the one-rollover-per-year limitation.

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