There’s an expectation that the IRS will expand and clarify these points, but as of now they haven’t, Doss said.
There’s also confusion about how long people can defer plan repayments to their 401(k)s.
Without clear guidance, people are going back to the law for a similar benefit program passed after Hurricane Katrina—the Katrina Emergency Tax Relief Act of 2005. That law only applied to those in the disaster zone, but people were reaching for the language in that law as far as repayments. “There’s a lot of similarities in terms of how you would report these types of distributions ... like from a record keeper and a tax perspective,” Doss says.
Another point is that if plan sponsors accept rollovers into their plans, do they have to accept repayments? That will also become a problem as more people start paying back, Doss said. If somebody wants to pay back their redistribution to another employer, does the new employer have to accept that? “That’s a lingering question too.”
The repayment of loans against your retirement plan is confusing, too, Doss said. “The broad point of confusion that we’ve seen is that [if] you have an outstanding loan you can defer payment. The time to be able to defer payment was through December 31, 2020. It said you could defer any payments up to that time up to December 31, up to one year. So that sounds like if you listen to that it says if I had a repayment in December 2020, that means I can defer that repayment until December 2021. … So you have this vast disparity among people thinking about when these repayments need to start.”