unwanted cares act withdrawal – rollover to roth IRA

Submitted by Kip Kindler on Tue, 2020-12-22 22:11

Hello! As I understand it, any unwanted CVD(covid withdrawal $) from a qualified 401k can be returned via direct or indirect rollover to an IRA.

I have an existing roth IRA that I would like to return some of these unwanted funds into. Within that 60day timeframe is it smarter to: A) do the rollover in these last few days of 2020 B) OR do the rollover in 2021(within the 60 days) ?

For sake of example let’s say the full unwanted amt is 3K. If I do this in 2020, will the entire 3K be added onto my taxable income or can I spread it out over the 3 years? You probably see where I’m going with this?

Or is there a better tax strategy maybe that involves first rolling it all into a Traditional IRA then later to a Roth. I just want to 100% avoid having to put the full unwanted amount on my 2020 return if that helps.
Thanks so very much in advance!!



Submitted by Alan - IRA critic on Tue, 2020-12-22 22:36

  • You cannot roll a CRD from a pre tax account into a Roth IRA. You would have to repay all or part of the CRD to your TIRA, and could then convert from the TIRA. Of course, that means that conversion taxes would all be due for 2020, not spread over 3 years. 
  • You have until your tax due plus extensions to repay the 3000, and then you would report the entire CRD and the amount repaid on your 2020 Form 8915 E. If you elect to pay taxes over 3 years, the amount of taxable income from the CRD would then be reduced by 3000 for your 2020 return.  However, if you convert from your TIRA, which is an entirely separate transaction from the CRD, you will owe taxes on the amount of the conversion in the year you actually convert (less any IRA basis you have).

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