IRA Distribution NOT re-deposited & Roth Conversion

Submitted by Doug Reed on Sat, 2020-05-02 12:51

As the CARES Act allows up to $100,000 for distribution from an IRA based on a coronaviras related distribution (CRD) and the 10% penalty does not apply for 2020, as well as the tax may be spread out over three years:

If this money is not re-applied back the the same or another IRA, would the taxable withdrawal be considered a 2020 only distribution or would it be spread over 2020, 2021 and 2022 as this might present an opportunity to plan for future RMD’s?

Further, could someone do Roth Conversions in addition to taking money out of an IRA based on CRD?

i.e. 1. $100,0000 CRD from IRA placed in a individual tax managed account. 2. Additional $40,000 IRA to Roth Conversion?



Submitted by David Mertz on Sat, 2020-05-02 15:34

  • A CRD is a 2020 distribution reported entirely on a 2020 Form 1099-R even though the taxable amount is optionally includible in income in equal parts over three years.  As such, CRD will not satisfy any part of a 2021 or 2022 RMD.  However, the reduction in the IRA balance from making the CRD will result in lower RMDs in future years.
  • Making a CRD has no bearing on one’s ability to do a Roth conversion.  A Roth conversion of other amounts can be done before or after making a CRD.

Submitted by Alan - IRA critic on Sat, 2020-05-02 20:07

In addition, a repayment of a 2020 CRD is apparently NOT considered an outstanding rollover for purposes of calculating RMDs. For example, if a 100k CRD is distributed in 2020, it will reduce the year end balance for 2020, 2021, and 2022 EVEN if it is repaid in 2023. That reduces RMDs for 2021-2023. This factor should be considered in determining when to repay if you are able to repay. But later repayment also means that the IRS holds your tax payments longer before you can amend for a refund.

Submitted by David Mertz on Sat, 2020-05-02 21:15

It’s not clear to me whether the repayment would be considered to be an outstanding rollover or not, which is why I didn’t mention it (and the question did not ask about that scenario).  My first impression was that it would not be considered to be an outstanding rollover.  However, where IRS Pub 590-B discusses the similar situation of disaster relief, the IRS indicates that a repayment is treated as a trustee-to-trustee transfer.  CFR 1.408-8 Q&A-8(a) indicates that ordinary trustee-to-trustee transfers that span a year-end are treated the same as outstanding rollovers with regard to calculating RMDs (otherwise they would provide a way for anyone to sidestep the RMD requirement each year), so one might interpret the combination of these statements as indicating that any CRD repayments during the 3-year window would be treated as outstanding rollovers as well.  However, I’m not aware of any specific guidance on this.

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