Cares Act distribution
I have a client, who is a real estate agent, with a SEP-ira and would like to take a withdrawal from it with the intention of putting the withdrawal back in the near future. I would do a 60-day rollover but she has already done one in the past 365 days. How do you know if you are eligible to take a distribution if you have not had COVID-19 or technically laid off since she is self employed. Please advise. Thank you
Permalink Submitted by Alan - IRA critic on Tue, 2020-05-05 03:48
You don’t know unless your situation is crystal clear in the brief wording in CARES. The IRS is going to have to issue guidance because there are many gray areas subject to interpretation. Client could take a distribution and hope the IRS provides the guidance in time to qualify for the CRD, and could always opt for a compromise solution of converting the distribution to a Roth IRA within 60 days. A conversion is not subject to the one rollover limit, and while taxable, is still a better outcome than retaining the distribution in a taxable account.
Permalink Submitted by Steve Karkosky on Thu, 2020-05-14 16:02
Since the 2020 Cares Act allows deferment of IRA RMD for 2020, is a 2020 Rollover IRA distribution/Conversion to Roth IRA taxable in the quarter taken? Or, can the tax be paid at year end due to the Covid-19 diaster?
Permalink Submitted by Alan - IRA critic on Thu, 2020-05-14 16:26
The 2020 RMD is not just deferrred, it is waived. Therefore, a conversion can be done at any time during 2020. The due date for tax payments depends on how the payments are being made. If done by withholding, the withholding distribution can be any time during 2020, however the lack of an RMD means that withholding from the IRA is not the best option. That leaves quarterly estimates, with the first 2 quarterly payments due on 7/15. Most retirees use 100% of the 2019 tax liability (110% for higher AGIs) to determine the annual total tax payments, but if the conversion will be considerably less than the RMD would have been, then instead of basing the estimated payments on 2019 tax liability, 90% of 2020 tax liability can be used. The CARES Act has no effect on these rules . While it’s a hassle, the annualized income installment method (Form 2210 AI) is an option in which the quarterly payments are based on the actual taxable income for each quarter. If the conversion is done late in the year, then the quarter in which the conversion is done would have a higher payment than the earlier quarters.