Take-Away: There may still be time for individuals who took a coronavirus related distribution (CRDs) to repay the withdrawn funds to their retirement account. But time may be running out on this opportunity.

Background: Congress you will recall  in 2020 passed the CARES Act. The CARES Act permitted qualified individuals who were affected by COVID to take penalty-free distributions from their retirement accounts, up to $100,000. The income taxes on those distributions could be spread over three years, starting in 2020. As part of this legislation, coronavirus related distributions (CRDs) could be repaid within three years to a retirement account, income tax-free. The three year pay-back period started the day after the funds were received from the retirement account. The pay-back, if chosen, could be in one or more repayments made during the 3 years. The only limit is that the repayments made by the account owner cannot exceed the amount of the coronavirus related distribution originally received.

Repayment Rules: The repayment of the coronavirus related distribution can be made to any retirement plan to which the original distribution could have been rolled over. Thus, the repayment does not have to be made to the account or the accounts, from which the coronavirus related distributions originated. Accordingly, if the individual has changed jobs since 2020, the money does not have to be returned to their former 401(k) account, if that was the source of the original CRD distribution. The repayment will be considered as a direct rollover between a plan and an IRA, or a custodian-to-custodian transfer between IRAs. Moreover, the one-time-per-365 day rollover limit will not apply to the repayment of the coronavirus related distribution. If such an amount is repaid, the individual will be able to file an amended income tax return to recover the income taxes that they  previously paid.

Conclusion: Sadly COVID is still with us. But 2020 also seems like a long time in the past. If an individual took a coronavirus related distribution in 2020, there may still be time to repay the withdrawn amount, if the three years have not yet passed and their financial affairs have sufficiently recovered to enable them to repay the CRD amount. Now may also be a good time to consider a repayment while investment values are relatively  low in the current down-market period. It’s something that anyone who took a CRD should considered before the three year deadline passes.