COVID Withdrawal from converted ROTH IRA | Ed Slott and Company, LLC

COVID Withdrawal from converted ROTH IRA

I converted funds from a Traditional IRA to a Roth IRA in 2019. I paid the taxes on the converted amount when I filed my taxes this year. I recently had my work hours reduced and will need to withdraw some funds from my ROTH for financial needs. I am currently under the 5 year holding period to withdraw converted funds with no penalty but since this would be a distribution under the CARES Act would the 10% penalty for distributions be waived and would the remaining portion of the 5 year withholding period be effectively eliminated? Thanks for your feedback.

If you spend the CRD from your Roth IRA, there will be no tax or penalty as long as you hold the CRD withdrawal to your regular or conversion contributions, no earnings.  However, if you were able to repay the Roth distribution up to 3 years from the date of distribution, the conversion would be restored to your Roth IRA and the remainder of the 5 year holding period would have to be met. If you took 2 or 3 years to repay, the 5 year clock would continue to run during that time, so there may not be much time left of the 5 years by the time you repaid. As for the CRD, you would report it on Form 8915 E and since the distribution would be tax and penalty free, you should elect to report the entire CRD on your 2020 return and Form 8915 E.

 

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