Retirement Account Distribution under Cares Act | Ed Slott and Company, LLC

Retirement Account Distribution under Cares Act

I have some questions relative to Retirement Distributions under the CARES ACT. I am 56 years old and have had my work hours reduced to part time due to COVID19. I am considering taking a distribution from a 401K that I had with a previous employer to take advantage of the waiver of the 10% early withdrawal penalty and 20% withholding. I will report the distribution on my taxes over the next three years. My goal will be to use the funds for immediate financial needs and then once on my feet again to recontribute my withdrawal distribution back into an eligible retirement account within three years so that effectively there will be no net tax due on the distribution. I have done some research but I don't see any mention of the specific accounts that my original 401k distribution can be rolled into. Since I will need to access the funds immediately can the 401K distribution go directly into the savings account at my bank for easiest access or will it have to be rolled over into either a Traditional or ROTH IRA? Also, the CARES ACT states that the recontribution must be put back into an "eligible" retirement account within 3 years but it's unclear what account that would be. I'm sure there will be more details to come but if you can shed any light on the questions i have at this point it would be greatly appreciated.


You qualify for a CRD and your distribution can be held anywhere you wish, for example your checking or savings account until you use it to pay bills or for any other use you prefer. Within 3 years you can repay whatever portion of the distribution you wish into an eligible retirement plan. Those plans would typically be an IRA or your current employer plan if it accepts such repayments. Some employer plans may not accept a CRD repayment, which would mean that you would use an IRA for repayment. The time of repayment determines how much of your distribution will be taxable in the repayment year, but would first be applied to the current year tax return. Additional repayments could be applied to the following year or a prior year return could be amended for a refund.  A CRD will be reported on a newly issued version of Form 8915, as would any repayments. Distributions you choose not to repay will be exempt from the 10% penalty, and distributions that you do repay will not be subject to the one rollover limit if they were taken from an IRA.

Thanks for the reply!   I'm assuming that the eligible retirement plans for repayment would include a Traditional IRA, ROTH IRA or 401K Plan. Is that correct?

Yes, there are others, but the 3 you listed are eligible retirement plans. 


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