Cares Act and CRD
My client withdrew from her 401k when she was laid off in April and her 401k account was subsequently closed. Since she no longer works for the company and cannot repay this to the 401k, can she still put the money into an IRA in lieu of putting it into the 401k in order to avoid the tax on the withdrawal? If not, can she still elect to pay the tax over the next three years?
Permalink Submitted by Alan - IRA critic on Thu, 2021-02-11 18:22
Since she apparently qualifies for a CRD, she should report the distribution on Form 8915 E as a CRD. This gives her the option to repay up to 3 years from the date of distribution, and can repay into any eligible retirement plan, most likely an IRA. Client needs to tell the IRA custodian that the contribution is a CRD repayment since custodians report them to the IRS on Form 5498 in Boxes 14a and b instead of the rollover box. Form 8915 E will credit any repayments she makes up till her due date for her 2020 return, and if she has elected to report the CRD income over 3 years (2020-2022), the repayment will be applied first to her 2020 return. For example, if she took a 100k CRD (max allowed), and elected the 3 year income, she would report 33.3K of income in each year, but if she repayed 33.3 by the due date it would be all credited to her 2020 return, meaning that she would have no CRD income in 2020, but 33.3 left for 2021 and 2022. On the other hand, if most of the repayment was made after the due date for the 2021 return, she would have to amend her 2020 and 2021 returns for a refund.