2020 COVD19 IRA Distributions and 3 year rollover rule

Submitted by hal katzen on Mon, 2020-04-27 19:37

My spouse was laid off and is now collecting unemployment and we both file jointly. Back in January/2020, I took a disbursement from both my traditional IRA and roth IRA with no intent of paying either back within the 60 day rollover rule. Now that the CRD act allows for disbursements up to $100k and can be paid back over 3 years, does a spouses unemployment allow me to now qualify for that? If so, if my intent is to pay back 100% over 3 years, do any taxes have to be paid on the pro-rated amount each year and then claimed as a credit in the subsequent years as you rollover the return of distributions?



Submitted by Alan - IRA critic on Mon, 2020-04-27 21:10

  • As currently written, causes of  “adverse financial circumstances” are limited to distributions from the plans of the spouse that is laid off, hours cut, etc.  Unless the IRS broadens the requirements to spouses, your distributions won’t qualify as CRDs.
  • However, if your spouse had taken these distributions as CRDs, an irrevocable election to either pay the taxes up front or over 3 years must be made by the due date for the 2020 return plus any extensions. If the default 3 year income reporting is applied, then 1/3 of the taxable income would be reported for 2020, etc. Repayments made by the due date plus extensions would be applied to the current tax year first. For repayments made in 2022 and 2023 that erased taxes already paid, a 1040X would have to be filed to claim a refund for those prior years OR the credit could be carried forward to offset the taxes due in later years. Therefore, you do have some options with 3 year repayments when the income is also reported over 3 years.

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