Time is running out to repay Covid-era 401(k), IRA withdrawals — and claim a tax refund
Retirement savers who withdrew money from their accounts in the early days of the Covid-19 pandemic may have just days or weeks left to repay those funds and reap the tax benefits.
The CARES Act — a federal relief law passed in March 2020 — allowed savers to pull up to $100,000 from individual retirement accounts and employer-sponsored arrangements like 401(k) plans. The law provided special tax benefits for the withdrawals.
These coronavirus-related distributions were meant as a financial lifeline for cash-strapped households during a time of economic carnage and the highest rate of unemployment since the Great Depression.
More from Personal Finance: It can take 6 years for workers to own a 401(k) match 2 ways retirees can protect nest eggs during a market rout Debt ceiling deal could cut part of $80 billion IRS funding
Savers got a tax break for these CRDs, which were only available in 2020. For one, the law waived the typical 10% tax penalty for early retirement withdrawals.
And while savers owed income tax on CRDs, they could recoup some or all of those income taxes later by partly or fully repaying their distribution. If repaid, the distributions essentially became tax-free loans.
Here's the catch: Savers had a three-year window within which to make that repayment. Otherwise, they'd no longer be eligible for a tax refund.
The three-year clock started the day after they received the funds — meaning the deadline for many people is fast approaching.
«I'd think the majority of the distributions were taken right around this time through the end of [2020],» said Sean Deviney, a certified financial planner based in Fort Lauderdale, Florida.
That's because it likely took a few weeks or months for employers and retirement
Read more on cnbc.com
