Alameda, CA asked in Tax Law for California

Q: Under the CARES act can I take a withdrawal from my 401(k) and use it to payback an existing 401 (k) loan?

One portion of The CARES act allows for withdrawals from your 401(k) without the typical 10% penalty. Additionally, it appears you can avoid the state and federal taxes if you put the equal amount back into the 401k within 3 years. In my scenario, would withdrawaling the funds to pay back an existing 401k loan meet the requirements to avoid the taxes? Additionally, if my normal contributions over 3 years would sum to the same amount I withdrawal is that considered sufficient to meet the avoidance of taxes?

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1 Lawyer Answer
Zaher Fallahi
Zaher Fallahi
  • Tax Law Lawyer
  • Los Angeles, CA
  • Licensed in California

A: I believe the CARES Act requires specific purposes for the “use” and your intended purpose may not qualify. Talk to the custodian. I hope this helps. Zaher Fallahi, Esq, CPA (CA &D.C.).

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