401k Coronavirus Related Distribution to Rollover IRA - saving fees

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
tonyclifton
Posts: 17
Joined: Sat Feb 08, 2020 5:25 pm

401k Coronavirus Related Distribution to Rollover IRA - saving fees

Post by tonyclifton » Sat Jul 04, 2020 10:04 am

Hello!

Seeking your advice on a coronavirus related distribution. In short, I am considering taking a coronavirus related distribution of $100,000 and rolling over 100% of the funds to a Schwab Rollover IRA. I do not want to pay any taxes or penalty on the withdrawal. The reason for doing this is to save the 0.8% annual administrative fee that Great West charges. This is $800 a year but compounded through retirement adds up.

Background info:

1. My company's plan with Great West Financial allows for coronavirus related distributions.

2. I had a paycut starting July 1st due to the coronavirus (it says so on my employee status change form).

3. I read through the materials on the IRS website. CARE Act, Notice 2020-50 indicates that I qualify for a coronavirus related distribution (Pages 4 & 5: B. Definition of qualified individual, "the individual having a reduction in pay (or self-employment income) due to COVID-19").

4. Great West Financial has the form on their website to take a withdrawal.

4. I already have a Schwab Rollover IRA account from a prior rollover from a prior employer. Schwab's instructions are to do an "indirect" rollover.

5. The Great West Financial withdrawal form has a checkbox to not withhold any Federal or State taxes. So I would end up with a check for $100,000 endorsed to me for the coronavirus related distribution.

Here are the proposed actions to be taken:

1. Request a coronavirus related distribution from Great West. Elect to not withhold any Federal or State taxes.
2. Receive electronic deposit from Great West.
3. As soon as deposit clears, send certified check (fee is $4) to Schwab along with Rollover Form.
4. File 2020 taxes as usual. Include IRS Form 8915-E to indicate the distribution from Great West 401k and the repayment to Schwab rollover IRA.
5. Continue to contribute to 401k. Do another coronavirus related distribution in 2021 if CARES act extended.

Questions:

1. Is it correct that if I deposit it within 60 days to the Schwab Rollover IRA that I would not pay any taxes on the distribution and that my repayment obligation would be fulfilled?

2. IRS Form 8915-E doesn't exist yet. Should I wait until this form is available to execute the above to avoid any surprises? Waiting seems like the least risky option.

Thank you in advance for your advice and feedback.

TonyC

foo.c
Posts: 95
Joined: Sat Jul 15, 2017 4:55 pm

Re: 401k Coronavirus Related Distribution to Rollover IRA - saving fees

Post by foo.c » Sat Jul 04, 2020 10:12 am

I think you have 3 years to either pay it back, pay the taxes, or roll over to another account.

I just took one myself, but haven't received funds yet.

lakpr
Posts: 5744
Joined: Fri Mar 18, 2011 9:59 am

Re: 401k Coronavirus Related Distribution to Rollover IRA - saving fees

Post by lakpr » Sat Jul 04, 2020 10:21 am

@tonyclifton,

Sounds like an excellent plan. Go ahead and do it right now, don't let the non-availability of the form 8915-E dissuade you.
Your salary reduction counts as being affected by Covid-19, so you CAN withdraw the $100k from the 401(k) plan and roll it into Rollover IRA.

If you find $800 lying on the road, would you pick it up or not?
If you say you would, then proceed with your plan as you outlined.

xerxes101
Posts: 310
Joined: Sat Oct 14, 2017 11:25 am

Re: 401k Coronavirus Related Distribution to Rollover IRA - saving fees

Post by xerxes101 » Sat Jul 04, 2020 10:26 am

Here is my feedback:

1. How old are you, because if you are 59.5 years old you could do this without going through the coronavirus song and dance (you are likely younger but just in case you were not aware of this)

2. Does your 401K administrator charge any distribution fees? May not be much but you should find out what it is exactly if any to avoid surprises.

3. With Schwab you can just deposit the the check electronically (via check image) and avoid any fees...not to split any hair here, but this option is available.

I think this is a good idea and you should do it. :beer

Escapevelocity
Posts: 93
Joined: Mon Feb 18, 2019 8:32 am

Re: 401k Coronavirus Related Distribution to Rollover IRA - saving fees

Post by Escapevelocity » Sat Jul 04, 2020 10:35 am

This is a very interesting idea. I don't have the high fees like you do, but it would provide more flexibility to invest in funds other than the limited selection available in my plan. I have a bit of a moral issue with this since I do not need these funds at this time although my pay check was cut 10% temporarily due to Covid.

Alan S.
Posts: 9798
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: 401k Coronavirus Related Distribution to Rollover IRA - saving fees

Post by Alan S. » Sat Jul 04, 2020 10:54 am

tonyclifton wrote:
Sat Jul 04, 2020 10:04 am
Hello!

Seeking your advice on a coronavirus related distribution. In short, I am considering taking a coronavirus related distribution of $100,000 and rolling over 100% of the funds to a Schwab Rollover IRA. I do not want to pay any taxes or penalty on the withdrawal. The reason for doing this is to save the 0.8% annual administrative fee that Great West charges. This is $800 a year but compounded through retirement adds up.

Background info:

1. My company's plan with Great West Financial allows for coronavirus related distributions.

2. I had a paycut starting July 1st due to the coronavirus (it says so on my employee status change form).

3. I read through the materials on the IRS website. CARE Act, Notice 2020-50 indicates that I qualify for a coronavirus related distribution (Pages 4 & 5: B. Definition of qualified individual, "the individual having a reduction in pay (or self-employment income) due to COVID-19").

4. Great West Financial has the form on their website to take a withdrawal.

4. I already have a Schwab Rollover IRA account from a prior rollover from a prior employer. Schwab's instructions are to do an "indirect" rollover.

5. The Great West Financial withdrawal form has a checkbox to not withhold any Federal or State taxes. So I would end up with a check for $100,000 endorsed to me for the coronavirus related distribution.

Here are the proposed actions to be taken:

1. Request a coronavirus related distribution from Great West. Elect to not withhold any Federal or State taxes.
2. Receive electronic deposit from Great West.
3. As soon as deposit clears, send certified check (fee is $4) to Schwab along with Rollover Form.
4. File 2020 taxes as usual. Include IRS Form 8915-E to indicate the distribution from Great West 401k and the repayment to Schwab rollover IRA.
5. Continue to contribute to 401k. Do another coronavirus related distribution in 2021 if CARES act extended.

Questions:

1. Is it correct that if I deposit it within 60 days to the Schwab Rollover IRA that I would not pay any taxes on the distribution and that my repayment obligation would be fulfilled?

2. IRS Form 8915-E doesn't exist yet. Should I wait until this form is available to execute the above to avoid any surprises? Waiting seems like the least risky option.

Thank you in advance for your advice and feedback.

TonyC
Plan will work fine.
Note that you have no repayment obligation at all, it just happens to be part of your plan to upgrade the location of your retirement dollars. If you have any doubts about your job or finances, doing the full repayment will have exhausted your access to CRDs. If you needed to withdraw from the IRA, it would not be a CRD and you would be subject to penalty in addition to tax, and not have the 3 year income or repayment options. You would also be subject to the one rollover limitation per 12 months.

If you are concerned about actually needing some or all of the 100k, you could report income over 3 years and repay over 3 years as well. That provides a 3 year access to the funds with taxable income deferred for 2 extra years. Note that you could take the CRD now, file an extension for your 2020 taxes next year, and have until October, 2021 to repay all or part of the 100k CRD. You could keep your options open for 15 more months if you wanted and still have no taxable income due to repayment if you repay in full by Oct, 2021 (4/15 if no extension filed). Of course, you may be secure enough not to need this added flexibility, which comes with the exposure of your funds being outside of retirement accounts for a considerable time.

If you want to see how 8915 E will look, you can get a good idea by checking older Forms 8915 A thru D. The concept will be the same. If you are filing Form 8606 for back door Roths, the 8606 will become more complicated, but if you follow your original plan to do an immediate 60 day rollover in full, then you will only have to file the E form for one year.

User avatar
Nate79
Posts: 6165
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: 401k Coronavirus Related Distribution to Rollover IRA - saving fees

Post by Nate79 » Sat Jul 04, 2020 11:23 am

The only negative that I didn't see mentioned is that you will be out of the market depending on how long the rollover takes. You can not imagine the number of threads over the years of posters whining and crying, threatening lawsuits against their 401k providers, due to lost gains during the rollover time. These gains could far outweigh any fees for a few years. Of course we don't see anyone complaining about missing out on losses during the rollover period but as the market goes up more often than it goes down you just need to be aware of the risk.

Topic Author
tonyclifton
Posts: 17
Joined: Sat Feb 08, 2020 5:25 pm

Re: 401k Coronavirus Related Distribution to Rollover IRA - saving fees

Post by tonyclifton » Sat Jul 04, 2020 12:31 pm

Thank you to everyone for the input and suggestions. I did some checking of the fine print in the 401k plan documents and reflected on the comments from other board members:
1. Xerxes101, I am early 40s and 59.5 is a ways off :sharebeer

2. I can add a bank account in Great West for use with transfers. Adding an account takes up to 15 days before the bank account can be used. I would add my Schwab checking account and skip the paper checks to receive the money and to send the money.

3. Great West's annual Asset Based Charge is 0.82% not the 0.8% previously listed. At least the choices are good - lots of low-cost Vanguard funds. But...VTIAX (Vanguard Total Intl Stock Index Admiral) goes from an expense ratio of .11% to costing .93% because of the admin fee. Likewise, VFIAX (Vanguard 500 Index Admiral) goes from an expense ratio of 0.04% to .86% because of the admin fee. The Great West website and statements are nice but not that nice to pay 0.82%.

4. Great West charges a $15 fee for an electronic ACH deposit.

5. Great West may charge a $50 fee for the "Benefit Disbursement." Whether or not this applies to a coronavirus related distribution isn't clear. This fee is listed in the Notice of Investment Returns & Fee Comparison document but not in the coronavirus-related withdrawal forms.

6. Alan S.'s comment about my approach "exhausting access to CRDs" gave me pause. I don't think this is an issue. DW and I have Roth IRA and 457b contributions that could be accessed before needing to liquidate this 401k. I'd also wager that if coronavirus is still around that CARES will be amended and another $100,000 could be taken out next year. Maybe not...

7. Escapevolocity's comment about the moral issue is interesting...I appreciate the spirit of what was written in the comment. I thought about this and read the Notice 2020-50. My plan doesn't appear to be a moral issue. I am qualified because I had a reduction in pay which is an adverse financial consequence as defined and permitted. The IRS isn't asking "how much it hurts."

8. I need to ask Schwab if they will accept a transfer from a Schwab checking account into the Schwab rollover IRA account. This method isn't covered by Schwab's instructions for funding a rollover IRA. If Schwab requires the rollover form and check then the time out of the market (item #9) goes up.

9. Given the recent volatility, Nate79's comment about time out of the market is a real issue. I didn't sell anything since January 2020 (and was fortunately able to keep regular investments going). Great West says they will take 2 to 3 business days to deliver the ACH deposit. Schwab will probably hold it for at least a day, although usually the funds show up and can be traded/transferred immediately. Schwab will take a day to but mutual funds. So this is maybe 5 business days out of the market in the best case or much longer if the transfer gets "lost" or bungled.

I am going to sleep on it, talk to Schwab about their requirements for funding the rollover, and talk to our plan administrator. Thank you to all!

User avatar
Nate79
Posts: 6165
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: 401k Coronavirus Related Distribution to Rollover IRA - saving fees

Post by Nate79 » Sat Jul 04, 2020 1:58 pm

tonyclifton wrote:
Sat Jul 04, 2020 12:31 pm
Thank you to everyone for the input and suggestions. I did some checking of the fine print in the 401k plan documents and reflected on the comments from other board members:
1. Xerxes101, I am early 40s and 59.5 is a ways off :sharebeer

2. I can add a bank account in Great West for use with transfers. Adding an account takes up to 15 days before the bank account can be used. I would add my Schwab checking account and skip the paper checks to receive the money and to send the money.

3. Great West's annual Asset Based Charge is 0.82% not the 0.8% previously listed. At least the choices are good - lots of low-cost Vanguard funds. But...VTIAX (Vanguard Total Intl Stock Index Admiral) goes from an expense ratio of .11% to costing .93% because of the admin fee. Likewise, VFIAX (Vanguard 500 Index Admiral) goes from an expense ratio of 0.04% to .86% because of the admin fee. The Great West website and statements are nice but not that nice to pay 0.82%.

4. Great West charges a $15 fee for an electronic ACH deposit.

5. Great West may charge a $50 fee for the "Benefit Disbursement." Whether or not this applies to a coronavirus related distribution isn't clear. This fee is listed in the Notice of Investment Returns & Fee Comparison document but not in the coronavirus-related withdrawal forms.

6. Alan S.'s comment about my approach "exhausting access to CRDs" gave me pause. I don't think this is an issue. DW and I have Roth IRA and 457b contributions that could be accessed before needing to liquidate this 401k. I'd also wager that if coronavirus is still around that CARES will be amended and another $100,000 could be taken out next year. Maybe not...

7. Escapevolocity's comment about the moral issue is interesting...I appreciate the spirit of what was written in the comment. I thought about this and read the Notice 2020-50. My plan doesn't appear to be a moral issue. I am qualified because I had a reduction in pay which is an adverse financial consequence as defined and permitted. The IRS isn't asking "how much it hurts."

8. I need to ask Schwab if they will accept a transfer from a Schwab checking account into the Schwab rollover IRA account. This method isn't covered by Schwab's instructions for funding a rollover IRA. If Schwab requires the rollover form and check then the time out of the market (item #9) goes up.

9. Given the recent volatility, Nate79's comment about time out of the market is a real issue. I didn't sell anything since January 2020 (and was fortunately able to keep regular investments going). Great West says they will take 2 to 3 business days to deliver the ACH deposit. Schwab will probably hold it for at least a day, although usually the funds show up and can be traded/transferred immediately. Schwab will take a day to but mutual funds. So this is maybe 5 business days out of the market in the best case or much longer if the transfer gets "lost" or bungled.

I am going to sleep on it, talk to Schwab about their requirements for funding the rollover, and talk to our plan administrator. Thank you to all!
One of the ways to get around the time out of the market is to adjust your asset allocation before the rollover such that the rollover amount counts as cash/bonds. So you sell enough bonds in other accounts, buy stocks and then when the money hits Schwab you switch back. However you need to have enough assets in other money to do this strategy.

User avatar
celia
Posts: 10973
Joined: Sun Mar 09, 2008 6:32 am
Location: SoCal

Re: 401k Coronavirus Related Distribution to Rollover IRA - saving fees

Post by celia » Sat Jul 04, 2020 2:23 pm

Can you just do a regular in-service rollover instead? Then you could move 99% of the account instead.

Can you just have the check made out to your Rollover IRA and forget about putting the money in taxable along the way?

The answers are probably dependant on the 401K rules.

Topic Author
tonyclifton
Posts: 17
Joined: Sat Feb 08, 2020 5:25 pm

Re: 401k Coronavirus Related Distribution to Rollover IRA - saving fees

Post by tonyclifton » Sat Jul 04, 2020 3:35 pm

celia wrote:
Sat Jul 04, 2020 2:23 pm
Can you just do a regular in-service rollover instead? Then you could move 99% of the account instead.
I wish...The plan does not allow in-service rollovers. I checked twice and asked our plan administrator about six months ago. This is why the coronavirus related distribution is of interest.

TonyC

Topic Author
tonyclifton
Posts: 17
Joined: Sat Feb 08, 2020 5:25 pm

Re: 401k Coronavirus Related Distribution to Rollover IRA - saving fees

Post by tonyclifton » Sat Jul 04, 2020 3:39 pm

Nate79 wrote:
Sat Jul 04, 2020 1:58 pm
One of the ways to get around the time out of the market is to adjust your asset allocation before the rollover such that the rollover amount counts as cash/bonds. So you sell enough bonds in other accounts, buy stocks and then when the money hits Schwab you switch back. However you need to have enough assets in other money to do this strategy.
I like this idea and it would be easy to do in tax advantaged accounts by swapping funds. Unfortunately, this won't work in our case. DW has a pension which we count as our 40% "bond." Just about all of the remaining retirement investments are equities.

TonyC

Monsterflockster
Posts: 328
Joined: Thu Nov 21, 2019 12:03 am

Re: 401k Coronavirus Related Distribution to Rollover IRA - saving fees

Post by Monsterflockster » Sat Jul 04, 2020 3:47 pm

tonyclifton wrote:
Sat Jul 04, 2020 3:35 pm
celia wrote:
Sat Jul 04, 2020 2:23 pm
Can you just do a regular in-service rollover instead? Then you could move 99% of the account instead.
I wish...The plan does not allow in-service rollovers. I checked twice and asked our plan administrator about six months ago. This is why the coronavirus related distribution is of interest.

TonyC
I posted a similar question/topic a week or so ago. My question was if it needs to be paid back to the same company and I have already maxed out my Roth. Seems like it’s all good but I’m going to wait until later in the year once things are more clear. Right now it’s sitting in taxable so at least it’s in the market.

Alan S.
Posts: 9798
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: 401k Coronavirus Related Distribution to Rollover IRA - saving fees

Post by Alan S. » Sat Jul 04, 2020 4:24 pm

tonyclifton wrote:
Sat Jul 04, 2020 3:35 pm
celia wrote:
Sat Jul 04, 2020 2:23 pm
Can you just do a regular in-service rollover instead? Then you could move 99% of the account instead.
I wish...The plan does not allow in-service rollovers. I checked twice and asked our plan administrator about six months ago. This is why the coronavirus related distribution is of interest.

TonyC
Lots of issues with this. The following comments only apply to qualified plan distributions, not IRAs.

CRDs and their precursor "qualified disaster distributions" instructions ignore the direct rollover issue and never clarify whether this can be even be done as a CRD. Prior instructions for 1099R coding do not include direct rollover code G.

The definition of a CRD refers to "distributions received by a participant", but it's not clear that this excludes direct rollovers, most of which are received by a participant and forwarded to the receiving plan. Some experts state that a CRD by direct rollover IS allowed, but also state that many plans DO NOT offer direct rollovers even when they adopt CRDs. After all, the plan itself has to track CRDs to make sure the 100k limit is not breached and therefore must internally code any distribution made from the plan as a CRD. But once the direct rollover's participant has extracted the QRP funds, they don't care if it's a CRD or not. The IRS would need to do a taxpayer audit to determine if the participant did combined direct rollovers over 100k from multiple plan. This is very unlikely.

The typical benefits of CRDs such as repayments, penalty waivers and 3 year income reporting are all immaterial for direct rollover distributions. The only benefit to the participant is the accelerated access to the plan balance. There is no apparent need to file Form 8915 (E) either if none of these typical benefits apply, but the form instructions are silent.

Many of the above observations also apply to Roth conversions of CRDs. Conversions do not fit the intent of disaster distributions or CRD and therefore the IRS is silent on the subject, although a total review of guidance fails to turn up any indication that conversions are not allowed.

In short, a direct rollover probably does qualify as a CRD, but plans are very likely not to cooperate.

Spirit Rider
Posts: 13281
Joined: Fri Mar 02, 2007 2:39 pm

Re: 401k Coronavirus Related Distribution to Rollover IRA - saving fees

Post by Spirit Rider » Sat Jul 04, 2020 5:00 pm

tonyclifton wrote:
Sat Jul 04, 2020 3:35 pm
celia wrote:
Sat Jul 04, 2020 2:23 pm
Can you just do a regular in-service rollover instead? Then you could move 99% of the account instead.
I wish...The plan does not allow in-service rollovers. I checked twice and asked our plan administrator about six months ago. This is why the coronavirus related distribution is of interest.
Even if a 401k plan allows in-service rollovers, that can only be from "distributible" assets. You are prohibited from doing an in-service rollover of employee deferrals prior to age 59.5.

A CRD has no such restriction.

Topic Author
tonyclifton
Posts: 17
Joined: Sat Feb 08, 2020 5:25 pm

Re: 401k Coronavirus Related Distribution to Rollover IRA - saving fees

Post by tonyclifton » Thu Jul 30, 2020 8:35 am

Wanted to provide an update on this situation...I took some action by adding my checking account info into the 401k plan @ Great West. Great West has a 15-day waiting period when new bank info is provided probably as a cooling off and anti-fraud measure.

Next, I reached out to my Rollover IRA provider @ Schwab via chat and phone.

Over chat, the representative indicated that Coronavirus Related Distributions needed to be paid back to the same account that made the distribution. To be fair, this wasn't 100% exactly what the representative wrote but it is what they implied - i.e. if the distribution originates in a 401k then it must be paid back to a 401k. The IRS language refers to a qualified plan as the place where repayment may be made...This is a big distinction and gave me pause. The rep advised calling Schwab's Retirement Services.

I called...Over the phone the representative said the IRS has not provided clear guidance on how Coronavirus Related Distributions may be paid back. At present, Schwab will treat money received as a rollover contribution and issue a form 5498. A rollover contribution may not have the same tax consequences as a Coronavirus Related Distribution repayment. The phone rep made it clear that the tax consequences are not really a Schwab issue and for me to handle - which I understand.

(Side note, as a compliment to Schwab, both reps were polite, professional and seemed well informed. My wait time on both phone and chat was just a few minutes which was a lot better than I expected.)

Wolters Kluwer has this fairly recent article with some helpful information, "IRAs and coronavirus-related distributions and repayments":
https://www.wolterskluwer.com/en/expert ... repayments

In short, the article says the clearer guidance is needed from the IRS...

Anyone else have any additional information or experience with doing a Coronavirus Related Distribution repayment?

xerxes101
Posts: 310
Joined: Sat Oct 14, 2017 11:25 am

Re: 401k Coronavirus Related Distribution to Rollover IRA - saving fees

Post by xerxes101 » Thu Jul 30, 2020 10:35 pm

tonyclifton wrote:
Thu Jul 30, 2020 8:35 am
Wanted to provide an update on this situation...I took some action by adding my checking account info into the 401k plan @ Great West. Great West has a 15-day waiting period when new bank info is provided probably as a cooling off and anti-fraud measure.

Next, I reached out to my Rollover IRA provider @ Schwab via chat and phone.

Over chat, the representative indicated that Coronavirus Related Distributions needed to be paid back to the same account that made the distribution. To be fair, this wasn't 100% exactly what the representative wrote but it is what they implied - i.e. if the distribution originates in a 401k then it must be paid back to a 401k. The IRS language refers to a qualified plan as the place where repayment may be made...This is a big distinction and gave me pause. The rep advised calling Schwab's Retirement Services.

I called...Over the phone the representative said the IRS has not provided clear guidance on how Coronavirus Related Distributions may be paid back. At present, Schwab will treat money received as a rollover contribution and issue a form 5498. A rollover contribution may not have the same tax consequences as a Coronavirus Related Distribution repayment. The phone rep made it clear that the tax consequences are not really a Schwab issue and for me to handle - which I understand.

(Side note, as a compliment to Schwab, both reps were polite, professional and seemed well informed. My wait time on both phone and chat was just a few minutes which was a lot better than I expected.)

Wolters Kluwer has this fairly recent article with some helpful information, "IRAs and coronavirus-related distributions and repayments":
https://www.wolterskluwer.com/en/expert ... repayments

In short, the article says the clearer guidance is needed from the IRS...

Anyone else have any additional information or experience with doing a Coronavirus Related Distribution repayment?
If I were you, I would talk to a Fidelity rep as well. Based on your description, sounds like it is unchartered territory, but it would be good to talk to another rep from a diff organization just in case they have more complete information / guidance for people in your situation...just my thought.
Last edited by xerxes101 on Fri Jul 31, 2020 10:11 am, edited 1 time in total.

Alan S.
Posts: 9798
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: 401k Coronavirus Related Distribution to Rollover IRA - saving fees

Post by Alan S. » Thu Jul 30, 2020 11:07 pm

tonyclifton wrote:
Thu Jul 30, 2020 8:35 am
Wanted to provide an update on this situation...I took some action by adding my checking account info into the 401k plan @ Great West. Great West has a 15-day waiting period when new bank info is provided probably as a cooling off and anti-fraud measure.

Next, I reached out to my Rollover IRA provider @ Schwab via chat and phone.

Over chat, the representative indicated that Coronavirus Related Distributions needed to be paid back to the same account that made the distribution. To be fair, this wasn't 100% exactly what the representative wrote but it is what they implied - i.e. if the distribution originates in a 401k then it must be paid back to a 401k. The IRS language refers to a qualified plan as the place where repayment may be made...This is a big distinction and gave me pause. The rep advised calling Schwab's Retirement Services.

I called...Over the phone the representative said the IRS has not provided clear guidance on how Coronavirus Related Distributions may be paid back. At present, Schwab will treat money received as a rollover contribution and issue a form 5498. A rollover contribution may not have the same tax consequences as a Coronavirus Related Distribution repayment. The phone rep made it clear that the tax consequences are not really a Schwab issue and for me to handle - which I understand.

(Side note, as a compliment to Schwab, both reps were polite, professional and seemed well informed. My wait time on both phone and chat was just a few minutes which was a lot better than I expected.)

Wolters Kluwer has this fairly recent article with some helpful information, "IRAs and coronavirus-related distributions and repayments":
https://www.wolterskluwer.com/en/expert ... repayments

In short, the article says the clearer guidance is needed from the IRS...

Anyone else have any additional information or experience with doing a Coronavirus Related Distribution repayment?
If you look at Schwab's rollover form, you will see a box where you must identify the amount of your rollover attributed to a disaster distribution. CRDs will follow all the prior guidelines for disaster distribution repayments as outlined in IRS Notice 2005-92. https://www.irs.gov/irb/2005-51_IRB#NOT-2005-92

Schwab will then file Form 5498 showing your repayment not as a normal rollover, but as a repayment in Boxes 14a and 14b of Form 5498. 14b will have a code to be issued by the IRS denoting a CRD repayment.

Therefore, the Schwab reps you communicated with are not totally up to speed on how this will work, and it is possible that the IRS will yet make modifications to Form 5498. That said, the IRS has clearly advised plan administrators that CRD distributions and repayments will be modeled almost entirely after the 15 year old disaster distribution reporting regime.

Form 5498 goes to the taxpayer and the IRS, who will match it up with the taxpayer filed Form 8915 E (a new version of the old 8915 form series for CRDs). The 8915 E will report all CRDs and repayments of CRDs, although it is not real clear how Roth conversions of CRDs will be handled. I think prior IRS releases did not want to disclose that repayment to a Roth IRA was allowed, since this is not what the CRDs and prior disaster distributions were meant to accommodate.

Shorter answer, when you make a repayment of your CRD, make sure Schwab understands that it is a repayment of a CRD, not an ordinary rollover, or there will be a mismatch that might trigger an IRS inquiry.

Topic Author
tonyclifton
Posts: 17
Joined: Sat Feb 08, 2020 5:25 pm

Re: 401k Coronavirus Related Distribution to Rollover IRA - saving fees

Post by tonyclifton » Sat Aug 01, 2020 7:38 am

Alan S. wrote:
Thu Jul 30, 2020 11:07 pm
Shorter answer, when you make a repayment of your CRD, make sure Schwab understands that it is a repayment of a CRD, not an ordinary rollover ...
Thank you for the details and the explanation. I do see that checkbox on the Schwab Rollover form. With an electronic funds transfer of the repayment there doesn't seem to be the option to use the form. I will explore this more with Schwab - i.e. how to do a CRD repayment using an electronic funds transfer and where do I indicate it is a repayment.

As of right now I am leaning towards waiting until closer to year-end to take further action. Maybe there will be more clarification of process. This would be a mess if someone processed the repayment incorrectly due to a clerical error.

Post Reply