Returning down payment to 403(b)

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John3
Posts: 8
Joined: Sat Aug 02, 2008 1:50 pm

Returning down payment to 403(b)

Post by John3 » Thu Jun 15, 2017 3:31 pm

I recently purchased a new home and in order to make a sizable down payment I used some of my 403 (b) while waiting to sell my old home. I have now sold it, several months later, and would like to replace the funds in my 403 (b). It is well over 60 days since I took the money out and I am over 60. What are the tax implications for the proceeds of the sale of my old home. I want to put them back in the 403 (b). I can put up to $54,000 into my 403 (b) it appears, but what is the tax status of these funds? All help is greatly appreciated.

goingup
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Joined: Tue Jan 26, 2010 1:02 pm

Re: Returning down payment to 403(b)

Post by goingup » Thu Jun 15, 2017 5:09 pm

Giving you a bump because I'd like to hear responses. I was not aware you could take out funds from a work savings program and return them later. I had figured a distribution was permanent, unless it was a specified loan. But I'm not knowledgeable about this.

runner540
Posts: 349
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Re: Returning down payment to 403(b)

Post by runner540 » Thu Jun 15, 2017 5:14 pm

Was this a loan from the 403b, or a withdrawal?

John3
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Joined: Sat Aug 02, 2008 1:50 pm

Re: Returning down payment to 403(b)

Post by John3 » Fri Jun 16, 2017 1:54 pm

It was a withdrawal, since I couldn't pay it back within 60 days, as I was waiting to sell my home to repay.

The Wizard
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Location: Reading, MA

Re: Returning down payment to 403(b)

Post by The Wizard » Fri Jun 16, 2017 1:59 pm

I've had a 403(b) for over 40 years and am reasonably sure you cannot put "ordinary" money back into it after doing a withdrawal.
You basically have a taxable withdrawal for the year you did this...
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retiredjg
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Re: Returning down payment to 403(b)

Post by retiredjg » Fri Jun 16, 2017 2:17 pm

John3 wrote: What are the tax implications for the proceeds of the sale of my old home.
It's just money, like the money in your checking account. There should be no tax on it unless you made a huge capital gain and that might even be waived due to your age - I don't remember the details.
I want to put them back in the 403 (b).
As far as I know, you cannot put a withdrawal back. I think you will receive a 1099 in January for the withdrawal and that will be added to your taxable income for 2017.

TropikThunder
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Re: Returning down payment to 403(b)

Post by TropikThunder » Fri Jun 16, 2017 2:23 pm

John3 wrote:It was a withdrawal, since I couldn't pay it back within 60 days, as I was waiting to sell my home to repay.
The standard process for 403b/401k loans involves repayment to the retirement account as monthly payroll deductions over the term of the loan. I've never heard of a 403b loan process that requires 60-day repayment. Usual terms are up to 5 years, and can be extended to 15 years if the loan was for home purchase. Where did the 60-day requirement come from?

That said, if you did take a withdrawal rather than a loan, was this considered a hardship distribution or an early withdrawal? It may not matter, since neither of those can be paid back to the 403b.
Hardships, Early Withdrawals and Loans
Generally, a retirement plan can distribute benefits only when certain events occur. Your summary plan description should clearly state when a distribution can be made. The plan document and summary description must also state whether the plan allows hardship distributions, early withdrawals or loans from your plan account.
Hardship distributions
A hardship distribution is a withdrawal from a participant’s elective deferral account made because of an immediate and heavy financial need, and limited to the amount necessary to satisfy that financial need. The money is taxed to the participant and is not paid back to the borrower’s account.
https://www.irs.gov/retirement-plans/pl ... tributions
Early withdrawals
A plan distribution before you turn 65 (or the plan’s normal retirement age, if earlier) may result in an additional income tax of 10% of the amount of the withdrawal. IRA withdrawals are considered early before you reach age 59½, unless you qualify for another exception to the tax.
https://www.irs.gov/retirement-plans/pl ... tributions
Loans
A retirement plan loan must be paid back to the borrower’s retirement account under the plan. The money is not taxed if loan meets the rules and the repayment schedule is followed. A plan sponsor is not required to include loan provisions in its plan. Profit-sharing, money purchase, 401(k), 403(b) and 457(b) plans may offer loans. Plans based on IRAs (SEP, SIMPLE IRA) do not offer loans. To determine if a plan offers loans, check with the plan sponsor or the Summary Plan Description.
https://www.irs.gov/retirement-plans/pl ... pics-loans
https://www.irs.gov/retirement-plans/pl ... pics-loans

runner540
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Re: Returning down payment to 403(b)

Post by runner540 » Sat Jun 17, 2017 10:34 am

OP, based on the info provided, it sounds like you cannot "put the money back". Instead, you need to prepare for the tax bill on the money you took out (full income tax, plus 10% penalty). A call to HR and/or your plan administrator may be needed to confirm.
Best thing to do going forward is put as much new money in as you possibly can.

123
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Re: Returning down payment to 403(b)

Post by 123 » Sat Jun 17, 2017 8:35 pm

If you are contributing less then the maximum allowed by your 403(b) plan just increase your contributions for whatever period of time it takes to absorb the money you want to put back in.
The closest helping hand is at the end of your own arm.

John3
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Re: Returning down payment to 403(b)

Post by John3 » Mon Jun 19, 2017 10:31 am

I should have no 10% penalty because I am over 59 1/2 and they took 20% out for taxes already. It appears that I can put up to $54,000 into my 403b in a single year, so my plan is to add much of the funds back this year. Vanguard said they would accept it as long as my plan agrees to send it. What impact does anything think this would have on my taxable income for the year? Thanks for your answers.

runner540
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Re: Returning down payment to 403(b)

Post by runner540 » Mon Jun 19, 2017 10:38 am

$54k is the limit for total contributions by employer and employee. Employee contributions are limited to $18k + $6k if you are over 50.

JGoneRiding
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Re: Returning down payment to 403(b)

Post by JGoneRiding » Mon Jun 19, 2017 10:39 am

John3 wrote:I should have no 10% penalty because I am over 59 1/2 and they took 20% out for taxes already. It appears that I can put up to $54,000 into my 403b in a single year, so my plan is to add much of the funds back this year. Vanguard said they would accept it as long as my plan agrees to send it. What impact does anything think this would have on my taxable income for the year? Thanks for your answers.
Its not all deductible though (403b) are weird so I don't know all the rules but most of that won't be deductible. I also think you have to EARN that much in order to contribute it. I would start with your plan administrator and talk to them.

For those people that seem confused on the 60 days--You can basically take a float loan from a retirement acct for 60 days, its like rolling money over, if you get it all back in in that time period then its like the loan/withdrawl never happened. The OP missed that window though

ERISA Stone
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Re: Returning down payment to 403(b)

Post by ERISA Stone » Mon Jun 19, 2017 10:39 am

John3 wrote:I should have no 10% penalty because I am over 59 1/2 and they took 20% out for taxes already. It appears that I can put up to $54,000 into my 403b in a single year, so my plan is to add much of the funds back this year. Vanguard said they would accept it as long as my plan agrees to send it. What impact does anything think this would have on my taxable income for the year? Thanks for your answers.
Based on your response here, I think you are conflating two things - your distribution and the ability to have up to $54k in contributions in a plan year.

It sounds like you took a straight withdrawal for your down payment. If this wasn't a loan, it is taxable in the year you took a distribution and you will receive a 1099. Since you are 60, there should be no additional tax liability other than the rate your income is taxed.

You do have a $54k limit, but a max of $18k can come from you as a pre-tax or Roth salary deferral. Your plan may provide you the ability to make after-tax contributions up to the limit, but that is plan specific. Obviously, after-tax contributions will not help you offset the tax liability you incurred from the distribution.

Also, keep in mind, your custodian took 20% from your distribution in taxes, but that may or may not satisfy your actual tax obligation.

ETA: if your plan allows (it should) you also have the ability to defer an additional $6k as a catch-up contribution that does not count against your $54k limit.

TropikThunder
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Joined: Sun Apr 03, 2016 5:41 pm

Re: Returning down payment to 403(b)

Post by TropikThunder » Mon Jun 19, 2017 12:13 pm

JGoneRiding wrote: For those people that seem confused on the 60 days--You can basically take a float loan from a retirement acct for 60 days, its like rolling money over, if you get it all back in in that time period then its like the loan/withdrawl never happened. The OP missed that window though
Yes, when you do an indirect rollover the check is made out to you and you have 60 days to deposit it into a new tax advantaged account to avoid having it count as a distribution (and owe taxes). But this was only an option in OP's case if his plan allows in-service rollovers, which many do not. And the 403b withdrawal form generally requires a box being checked to indicate whether it is a rollover or a withdrawal. You can repay a rollover (essentially reversing it, but only if the plan allows incoming rollovers, which many do not). You can't repay a normal distribution or hardship withdrawal, so it is critical how the paperwork was filled out in the first place.

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