Using an IRA W/D to pay back Covid W/D
I have a client that took an IRA Covid W/D and is taking advantage of the 3 year payback provision. He wants to take a W/D from his IRA now to make his 2nd payment back into his IRA for that provision and then replace the funds he is taking out now within 60 days to avoid a taxable event. Is this possible to do? Thanks.
Permalink Submitted by David Mertz on Thu, 2022-03-31 23:48
Makes no sense to do that. Client should just request a filing extension and make the second repayment in 60 days when the funds that would otherwise be used to complete the rollover of the proposed IRA distribution are available. Because the repayment will be done before the due date of the 2021 tax return, including extensions, the amount repaid won’t be taxable on the 2021 tax return. Even if the funds wouldn’t be available until after October 15, repayment after October 15 could be done to recoup the taxes previously paid on the CRD by amending the 2021 tax return.
Permalink Submitted by Alan - IRA critic on Fri, 2022-04-01 00:16
Yes, but even if client has a 60 day rollover available, this will only buy him another 60 days to repay. If he has not yet filed his 2021 return yet, he could file an extension by 4/18 and have another 6 months to repay the second 1/3 installment and avoid tax on that installment with the extended 2021 return. This provides much more time and will not use up his one permitted rollover as he would not have to take another IRA distribution.