2020 IRA distribution
My client wants to take 50,000 out of their IRA. The CARES act says that taxes may be avoided if the funds are put back within 3 years. How does this play out when they get their 1099R for 2020. Will they have to pay taxes and then get reimbursed if they put it back by 2023, or is there going to be something they can do for 2020 to avoid taxes until 2023?
Permalink Submitted by Alan - IRA critic on Tue, 2020-07-07 18:09
First, client must qualify for a CRD. If he does, then he can take distribution(s) up to 100k no later than 12/30/2020. When filing the 2020 return client elects whether to report the distribution in 2020, or 1/3 of it each year 2020-2022. He would elect the latter. The only way to avoid taxes for 2020 is to repay 1/3 of the distribution by the due date (including extensions) for the 2020 return. Otherwise, they must pay the taxes each year depending on how much they repay and when. If repayment is not done until 2023, client will have to file an amended return for 2020 and 2021 to request a refund of taxes already paid. If the distribution is this month, then the repayment deadline is July, 2023. That would avoid tax due on the 2022 return if he extends 2022, but would have to amend 2020 and 2021 for a refund.
Permalink Submitted by Robert Roselli on Wed, 2020-08-12 11:58
My understanding is that does not apply to Inherited IRAs, can you please clarify?
Permalink Submitted by Alan - IRA critic on Wed, 2020-08-12 16:14
It is not clear in the CARES Act wording if a CRD can be taken from an inherited account, however it could not be repaid since for non spouses no distributions are rollover eligible. That means the only potential benefit of a CRD from an inherited account is the 3 year income spread. The IRS will have to clarify if a CRD can be taken from an inherited plan.
Permalink Submitted by David Mertz on Wed, 2020-08-12 17:47
It seems pretty clear to me that CRDs are permitted to be made from inherited IRAs, allowing the income to be spread over 3 years. Section 2202 of the CARES Act uses the same wording as was used with regard to past disaster distributions, and the instructions for the Forms 8915 for disaster distributions make specific reference to inherited accounts, particularly indicating that disaster distributions from inherited accounts are not permitted to be repaid.