Q. If a qualifying withdrawal is taken from a 401(k), can I avoid taxes by paying back the amount into a “qualifying plan” within three years? Does this mean that I must pay back into the same account or could that be into an IRA?
— Back on track
A. The CARES Act gives leeway when it comes to taking early distributions from retirement accounts.
The legislation allows you to take an early withdrawal from qualified plans without paying the penalty, and it also allows you to pay the funds back to a qualifying plan within three years, as you said.
But this only applies to a “qualified individual” with a valid COVID-19-related reason for the early distribution, said Gail Rosen, a Martinsville-based certified public accountant.
Rosen said in order to be a “qualified individual” you, your spouse or dependent must either have been diagnosed with COVID-19 or had adverse financial consequences as a result of COVID-19 — as defined by the IRS.
“Repayment does not have to be made to the same IRA or company plan from which the coronavirus-related distribution was originally paid,” she said.
Email your questions to Ask@NJMoneyHelp.com.
Karin Price Mueller writes the Bamboozled column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com’s weekly e-newsletter.
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