Hi All -
I received a question about "rollovers" from a 401-K. The client wants
to take money out of his 401-K and then return it to the same plan,
within 60 days. And he would like to do that much more often than once
From what I can tell, while IRA rollovers (including putting money back
into the same account) are limited to one per year to be tax neutral,
rollovers from one 401-K to another don't have that same limit.
But the issue of putting the money back into the same 401-K has me a
bit concerned, and I haven't easily found authority on whether that is
also permitted more than once a year.
I am not aware of anything in the code that prevents a redeposit of a
401K distribution within 60 days to avoid taxation. But.... the plan
document must allow for in service distributions for any reason. The
plan document could limit the number of redeposits. Lastly, there is 20%
mandatory federal income tax withholding. To avoid taxation, the
taxpayer would have to come up with the withheld 20% when redepositing.
The only time I ever heard of this was for a Solo 401K. Just about all
employer plans would probably prohibit it.
You're a tax professional and I'm not, but is "rollover" the right
word? For example, this page --
(admittedly not the IRS) says "A 401(k) rollover is when you direct the transfer of the money in your retirement account to a new plan or IRA."
If he intends on putting the money back into the same plan, that
sounds to me much more like a loan.
I googled for "loans from 401(k)" (without quotes) and found some
According to this page --
how the employer set up the plan determines whether multiple loans, single loans, or no loans are allowed.
But he wouldn't be able to write a check to replenish the 401(k); the
same page says that repayments must be by payroll deductions.(*) And
it warns that some employer plans don't allow regular contributions
while the loan is being repaid. And this page --
that the repayment deductions are made with after-tax dollars.
(*)However, this page--
"Your plan may also allow you to repay your loan through payroll deductions," which implies that he could make the repayment by writing a check. All pages that I looked at agree that he must also pay interest on the loan, at a rate determined by the plan.
I suspect "much more often than once a year" would generate a 1099-R
with an amount that raises eyebrows at the IRS. Maybe ask him what
he's trying to accomplish by this procedure, and counsel him to find
some other way to do the same thing?
I'm not saying, of course, that the IRS would necessarily treat these
money transfers as loans; but I'd hate to bet that they wouldn't,
when the penalty is a hefty tax on premature withdrawals.
I had the same concern. I did find a statement in an IRS document
that, with respect specifically to an IRA, that "rollover" would
refer to moving money to a different account or the same account.
Yes, that's what concerns me.
Interesting. Thanks. I don't necessarily believe it if it's not
from the IRS, and even then I can be skeptical.
But I am concerned about the situation. You've given me additional
information that will help. Thanks.