Can I Put Money Back Into My 401k?
Returning funds to your 401k depends on the type of withdrawal and strict timelines. Understand the key distinctions and tax rules that govern this process.
A 401k plan is a workplace retirement account designed for long-term savings, but situations may arise where you need to access funds early. The ability to return money that has been taken out is strictly governed by tax law and depends on the circumstances of the withdrawal. Each type of withdrawal, from a loan to a distribution, has its own set of rules and timelines that dictate whether repayment is an option.
Repaying an Outstanding 401k Loan
Taking a loan from your 401k is a common way to access retirement funds early. This is not “putting money back,” but repaying a debt to your own account. While employed, loan repayments are handled through automatic paycheck deductions over a set period, usually up to five years, and the interest you pay is also deposited back into your account.
If you leave your job with an outstanding loan balance, the Tax Cuts and Jobs Act provides an extended repayment period. You have until the tax filing deadline of the year following your departure, including extensions, to repay the balance. For example, if your employment ends in 2024, you have until April 15, 2025, or October 15, 2025, with an extension, to repay the loan.
Failure to meet this deadline results in a “deemed distribution.” The outstanding balance is reclassified as a taxable withdrawal, subject to ordinary income tax. If you are under age 59½, you will also face a 10% early withdrawal penalty.
To avoid this taxable event, you can repay the loan amount to an IRA or a new employer’s 401k that accepts such rollovers. This “plan loan offset rollover” must be completed within the same extended deadline. Moving the funds to another qualified retirement account satisfies the repayment obligation without immediate taxes or penalties.
Returning a Distribution Using the 60-Day Rollover Rule
The 60-day rollover rule applies to an “eligible rollover distribution,” which is a payment you receive directly from your 401k. The rule gives you a 60-day window from the date you receive the funds to deposit them into another eligible retirement account, like an IRA or a new 401k, without tax consequences. This process is known as an indirect rollover.
When you receive a distribution, your plan administrator is required to withhold 20% for federal income taxes. To complete a full, tax-free rollover, you must deposit the entire original distribution amount into the new account. This requires using personal funds to make up for the 20% that was withheld.
For example, if you request a $20,000 distribution, your plan will send you $16,000 after withholding $4,000 for taxes. To avoid tax liability, you must deposit the full $20,000 into a new retirement account within 60 days, using $4,000 of your own money. The withheld $4,000 will be credited to you when you file your annual tax return.
If you only deposit the $16,000 you received, the $4,000 shortfall is considered a taxable distribution. It will be subject to ordinary income tax and a 10% early withdrawal penalty if you are under 59½. Missing the 60-day deadline for any portion of the distribution results in the same tax treatment.
Repayment Options for Special Withdrawals
Federal law provides exceptions that permit the repayment of certain withdrawals. One example is the Qualified Birth or Adoption Distribution (QBOAD), introduced by the SECURE Act. This provision is designed to provide financial flexibility for significant life events.
A QBOAD allows each parent to withdraw up to $5,000 from their plan, penalty-free, for each birth or adoption within one year of the event. While the 10% early withdrawal penalty is waived, the distribution is subject to ordinary income tax unless repaid. The SECURE 2.0 Act gives individuals a three-year period to return the funds.
Repaying a QBOAD is treated as a rollover contribution, which reverses the tax consequences of the initial withdrawal. For distributions taken before December 30, 2022, a special transition rule provides a repayment deadline of December 31, 2025.
When Funds Cannot Be Returned to a 401k
Certain withdrawals from a 401k cannot be put back. The most common example is a hardship withdrawal, which is permitted only for an “immediate and heavy financial need” as defined by the IRS. By their nature, hardship withdrawals are not eligible for repayment and are considered permanent distributions.
Funds also cannot be returned after a 401k loan defaults and becomes a “deemed distribution.” This occurs if you fail to repay the loan by the deadline after leaving your job. Once the loan is deemed distributed and reported as taxable income, the event cannot be reversed by later repayment, even though the debt may remain on the plan’s books.
For both hardship withdrawals and defaulted loans, the only way to add money back into your 401k is through new employee contributions, which are subject to annual IRS limits.