Has anyone taken the allowed distribution from a 401K or IRA? I was RIF'd and im thinking of taking some cash in case of emergency. I'm aware of the timlines to pay back whitin 3 years for tax purposes. I'm just wondering if it is easy to do or if you have to jump through hoops.
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I read that three times and didn't see any of the grammar issues until the first read after posting.
It would seem (https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers) that the tax treatment is pretty favorable.
You DO have to meet one of a set of criteria to qualify (see A3), but one of those is that you "experience adverse financial consequences" from quarantine, a furlough, a layoff, or work hours reduction. I'm not going to try to figure out the details of that. Even though I was furloughed for the two weeks I certainly don't consider myself as having "experience[d] adverse financial consequences", but who know.
From (A9), it is OPTIONAL for an employer to adopt these rules. Apparently Honeywell has.
From (A1), you can withdraw up to $100,000. I'll use $99,000 in this example.
From (A6), you would have have the option of either including all of the income in one year and paying it in one year, or you would spread it out over three years ($33,000/year) and pay the taxes over three years.
From (A7), you can repay the all or part of the distribution into an eligible retirement plan (I assume Traditional IRA because it doesn't say anything in the answers that require the employer to allow redeposit into the 401k) within three years and it will be treated as a trustee-trustee transfer. If you paid $33,000 back in year three, you would file and amended return for years one and two to received refunds on the $11,000 attributable to each of those years and would not include that other $11,000 in year three. I assume you could do a partial payback in years one or two but the Q/A is not explicit.
The tax on the withdrawal is spread out over three years.
@2sdg: 401k withdrawals are taxed as ordinary income at whatever tax bracket you fall into. They don't qualify as capital gains distributions taxed at 15% like after tax investment accounts. At least that's what I was told by my financial advisor.
How much is the taxes you have to pay if you don’t pay the loan back? 15%?
Very easy to do, and at least for me it was not a loan, but a disbursement. The 3 year time table is for paying the taxes.
Very easy. Cash in a few days.
I did and it’s very easy.
You are correct. There are no limitations on the use of the money. With the volatility in the market, investing could of course be risky. However,we do have 3 years before any payback and history shows the market should do ok?
Soooo could you take money out, invest it, keep the gains, pay back the principle to your 401k and then only pay 15% capital gains on your earnings instead of full income tax if you had made the same earnings inside your 401k??
Yes. Deadline for distribution under cares act is the 12/31/20. After 3 years you have to start paying taxes on any amount that has not been paid back. The taxes can be spread out over 3 years.
Wait... it has to be paid back to avoid taxes?
Better off keeping it in 401K as long as you can while market continues to recover, especially considering you can get money direct deposited so quickly.
Easy to do, cash was dispersed in three days.