60 day rollover rules

If a participant takes a $200,000 in-service withdrawal (and pays the 20% mandatory tax withholding), then they decide they don’t need the money after all, can they put it back into a plan or an IRA?  Or is it a done deal since it was a cash distribution to the participant?

Assuming it was an eligible rollover distribution (e.g., not a hardship distribution), yes, it can be rolled within 60 days of the date of distribution.  The P will have to find another $40,000 somewhere else if he/she wishes to avoid tax on that amount.  

If the participant returns the $160,000 to the plan, can't the plan just request refund of the $40,000 withholding on Form 945-X?

37 minutes ago, digger said:

If the participant returns the $160,000 to the plan, can't the plan just request refund of the $40,000 withholding on Form 945-X?

Does the plan have any mechanism for such "return"?

13 hours ago, digger said:

If the participant returns the $160,000 to the plan, can't the plan just request refund of the $40,000 withholding on Form 945-X?

On what basis?  Withholding was mandatory, and nothing about that would change with a rollover back in.

14 hours ago, david rigby said:

Does the plan have any mechanism for such "return"?

I agree with this.  I don't think I have seen a plan that has a provision that allows for a legit distribution to be just "cancelled" because the person changed their mind.  

He can roll the $160,000 he received back into the plan and re-establish that portion of his account.  If he can come up with another $40,000 to roll in, then he can replace the entire $200,000 and effectively get back his $40,000 in tax withholding at the end of the year when he files his taxes.

However, if he does not replace the $40,000 that was sent to the IRS, he will have to report that amount as a taxable distribution.  Since all of the $40,000 was sent to the IRS as withholding, he will get some of it back when he files his taxes. 

Thanks for the analysis. The day's wasted if you don't learn something!

I am reading that to return the IRA distribution that ALL of it must be returned.  

  -  If 200,000 is distributed and 40,000 withholding is paid, to return the distribution within 60 days all 200,000 must be returned . 

Am I mistaken?  Can the 160,000 simply be returned reducing the the distribution to 40,000 which ACK points out would result in a possible IRS refund?

You are mistaken. Yes.