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Repaying a CRD

COVID affected the world, and to help those who lost their jobs due to it, Congress passed the CARES Act to fund them. But those withdrawal payments are due.

Now is the time to look at taxes from the CARES Act and seek to repay them.


Back in 2020 when COVID first became our new reality, Congress enacted the CARES Act. The CARES Act allowed qualified individuals who were affected by COVID to take penalty-free distributions from their retirement accounts of up to $100,000. The taxation on these distributions could have been paid in 2020 or spread over three years.

These distributions are called coronavirus related distributions (CRDs) and they were only allowed in 2020. However, CRDs can still be repaid to eligible retirement accounts. Recently, we have received some questions about how repayment of a CRD works. Here is what you should keep in mind if you are considering repaying a CRD.

If you took a CRD, you may repay the withdrawals within three years to a retirement account, tax-free. The three-year period begins on the day after the date the funds were received. You can make one or more repayments during the three years. Repayments cannot exceed the amount that was distributed.

The repayments can be made to any retirement plan to which the original distribution could have been rolled over. Repayment does not have to be made to the account from which the CRD originated. This is an important point to keep in mind because many individuals may no longer have the retirement account from which the CRD came. For example, they may have changed jobs and no longer participate in the plan from which they received the CRD.

The repayment will be considered a direct rollover between a plan and an IRA, and a trustee-to-trustee transfer between IRAs. As such, no taxable event is considered to have occurred when CRDs are repaid, and the once-per-year rollover rule will not apply.

If you recontribute a CRD, you are able to file an amended tax return to recover the taxes paid.

Example: Juan had COVID in 2020 and lost his job. He took a CRD of $100,000 on September 8, 2020, from his 401(k). He elected to pay taxes due on the CRD in 2020 instead of spreading the income over three years. In 2022, Juan has a new job. He decides to repay the CRD to his IRA. He will need to file an amended return to recover the taxes he paid in 2020.

By Sarah Brenner, JD
Director of Retirement Education
Ed Slott and Company, LLC

For more information on how the economy has been functioning in terms of unemployment, watch this video by Rodney Johnson

Copyright © 2022, Ed Slott and Company, LLC Reprinted from The Slott Report, 07/20/22, with permission. https://www.irahelp.com/slottreport/repaying-crd, Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article. Chris Cordoba, founder of California Retirement Advisors, is a member of Ed Slott's Master Elite IRA Advisor Group. 
Investment advisory services offered through Mutual Advisors, LLC DBA California Retirement Advisors, a SEC registered investment adviser. Securities offered through Mutual Securities, Inc., member FINRA/SIPC. Mutual Securities, Inc. and Mutual Advisors, LLC are affiliated companies. CA Insurance license #0B09076. This content is developed from sources believed to be providing accurate information and provided by California Retirement Advisors. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. California Retirement Advisors, nor any of its members, are tax accountants or legal attorneys and do not provide tax or legal advice. For tax or legal advice, you should consult your tax or legal professional.