CARES ACT Distribution

Submitted by Jody Howard on Fri, 2020-08-21 14:31

I understand if you meet certain qualifying conditions you may take an IRA distribution during 2020 up to 100k and it not be subject to the 10% pre59 1/2 penalty. Also you may count that amount up to 100k max as taxable income over next 3 years and repay by end of third year and it will be treated in total as trustee to trustee transfer. So do you get a reduction in taxable income when you recontribute to your IRA in whatever year you make the recontribution? Also, if you don’t recontribute to IRA by end of 3rd year is amount not recontribute only, subject to 10% penalty and taxes you’re already paying anyway? Or if you don’t recontribute entire amount by end of third year the entire amount is not considered an eligible distribution and Thjs entire amount subject to 10% penalty? Tks.



Submitted by Alan - IRA critic on Fri, 2020-08-21 15:14

  • Repayment of a CRD can occur up to 3 years from the date you received the CRD distribution. Both the CRD and repayment are reported on Form 8915 E (not yet released by the IRS). The form will apply the repayment first to the year of the repayment with such repayment made up to the extended due date of the tax year applying for that tax year. In other words, if an extension is filed for 2020 return, repayment can be made up to 10/15/2021 and applied to reduce the reportable income for 2020. If repayment is made late in the term (eg for 2022), it will be applied against 2022 income and then amended returns would need to be filed for a refund on 2020 and 2021 taxes. Unless the instructions for the from are clear, I would not plan on repaying in 2023 any later than 3 years from the day you received the CRD in 2020.
  • Amounts not repaid are subject to tax in the applicable year. Usually 3 years is elected on the initial Form 8915 E.  There is never a penalty on a CRD not repaid. In addition, repayment of an IRA distribution is not subject to the one rollover limitation for 12 months.
  • Plan to carefully review the new Form 8915 E and instructions once released. The form will be rather complex. If you want to get a general idea, you could pull up Form 8915 B used for disaster distributions, as the IRS will model CRDs after the prior disaster distribution provisions.

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