401K distribution
My son took out a distribution from my 401k retirement account with the COVID Relief bill to pay down his student loan, It said I had 3 years to pay the taxes. He received a 1099 R I’m assuming its for the Fed & St Taxes on the distribution. Does he pay it back all this year or can he split it up into three years?
Thanks
Terry Says
First of all, your SON did not take money out of YOUR 40l(k). YOU did!! It’s your retirement account and it is your money — and YOUR responsibility to put it back to avoid taxes. How you get that money from your son doesn’t matter. It should come back into your 40l(k) from YOUR checking account!
The 10% penalty is waived, but you must still pay taxes at your ordinary income rate on the money withdrawn. The distribution can be taxed as income spread evenly over tax years 2020, 2021 and 2022. However, if you can pay back the amount you took out within three years, you can claim a refund on those taxes.
So not only do you have to plan with your son to repay the money to you, so you can replace it in time. You must pay the income taxes on at least 1/3 of the distribution every year for the next three years. (And, I should point out you’re losing out on the growth of that money inside your plan. This year, that was costly.)
