01 Oct I took money from my 401(k). Can I get back the taxes withheld?

Q. I took $80,000 out of my 401(k) in March after getting sick, three weeks before turning 59 ½. I now want to return the $65,000 check I received, but no one can tell me how to get back the $15,000 in taxes that was withheld so I can put back the entire amount. What can I do?
— Stumped

A. When you take a distribution from your 401(k) plan, the plan administrator is required to withhold 20% for federal income taxes.

Under the CARES Act, qualified IRA and retirement plan account holders affected by the virus can withdraw up to $100,000 of their vested balance without having to pay the 10% early withdrawal penalty, said Gerard Papetti, a certified financial planner and certified public accountant with U.S. Financial Services in Fairfield.

You can choose to spread the income taxes owed on these coronavirus-related distributions over a period of three years, he said.

As you’re planning, you can also any portion of the distribution over the three year period, and you’d avoid the tax consequences.

But if you roll the funds back into your 401(k) plan or an IRA, although you can avoid income taxes on the distribution, any taxes withheld will not be immediately refunded to you, Papetti said.

Instead, he said, the taxes withheld will be credited to you when you file your income tax return.

“If you wish to avoid tax on the total distribution, you will need to add the amount of income tax withheld of $15,000 from your own funds to the net amount of $65,000 you received from the distribution,” he said.

So in your situation, you will have three years to replace the amount withheld for taxes.

“If you do not have other funds to repay the income tax withheld of $15,000 to the 401(k) plan, you can wait until you file your 2020 tax return and hopefully get the entire amount refunded and repay the balance to your 401(k) at that time,” Papetti said.

Email your questions to .

This story was originally published Oct. 1, 2020.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.