Statement of FACTS

James has a 401(k) Plan with his former employer, company ABC. As a “qualified individual” in respect of the CARES Act, he took a coronavirus related distribution in 2020 from the former employer 401(k) plan.

The due date for James’ 2020 tax return has been extended to October 2021.

His financial situation improved and he no longer needed the withdrawn funds. As a “qualified individual” he intended to repay, the 2020 withdrawal.

The former employer Plan doesn’t accept contributions from former employees. The plan administrator suggested James repay the funds to his current employer 401(k) Plan and his contributions to the current employer 401k plan could constitute payments in respect of the loan repayment.

James is employed by company DEF and participates in DEF’s 401(k) Plan. In 2020 and 2021 James contributed amounts totaling $21,000 to company DEF’s 401(k) plan. By year, the contributions were: 2020 : $9,000 and 2021 : $12,000.

ISSUE. What is the appropriate mechanism for reporting James’ contributions to the current employer 401(k) plan as payments in respect of the loan?

PROPOSED ANSWER
The law appears to permit repayment of a coronavirus-related distributions to the plan from which it was received or to any another eligible retirement plan. If so, it appears that Form 8915-E (2020), Qualified 2020 Disaster Retirement Plan Distributions and Repayments is the relevant form for reporting “any repayments” made to a qualified plan before filing the 2020 return.

Based on the Form Instructions, (page 3), it appears “any repayments you make will reduce the amount of qualified 2020 disaster distributions reported on your return for 2020.”

In the outlined fact pattern, the $20,000 withdrawal would be reported in Part I – Total Distributions From All Retirement Plans (Including IRAs), line 1. In Part II – Qualified 2020 Disaster Distributions From Retirement Plans (Other Than IRAs), line 6 is the amount from Line 1.

The repayments included in Part I, Line 10, would be $20,000 of James’ contributions to the current employer 401(k) plan made after the date of the withdrawal and before the extended due date for filing his 2020 tax return.

The net result is that James’ withdrawn pre-tax funds have been returned to an eligible retirement plan which satisfies the repayment requirements and hence zero is subject to tax in 2020.

REQUEST
I am grateful for any feedback from Forum members in respect of the proposed answer. Do I have it right? Is there anything I am missing or other pitfalls that need to be considered?

With appreciation