2020 IRA Withdrawals

Submitted by John Schwarz on Thu, 2020-10-01 13:37

I know under the current federal law for this year you can withdraw from an IRA without penalty and return it to the IRA and end up paying no federal tax on the withdrawal. If you don’t return the funds withdrawn in 2020, you have to pay either the full federal tax or 1/3 of the federal tax each of year of 3 years. Then upon return of the funds in that 3 year period you can file a 1040 X to get the federal tax back that you paid previously in those years.

My question is what about New York State tax. I haven’t seen anything similar there. So do you have to pay the full tax this year with no refund possible? That assumes of course that you don’t return the funds to the IRA this year.

Thank you.

hoopsjs12



Submitted by Alan - IRA critic on Thu, 2020-10-01 17:00

We cannot track all state conformity decisions, since many take several months or more to be made. NYS in particular has been prone to go their own way and not conform to federal tax rules. You should call the NYS Dept of Revenue and ask them if they are conforming to the entire CARES Act and if not specifically to the CRD and return of CRD provisions. Under federal rules you have until the due date plus extensions to elect to pay taxes in 2020 or 1/3 each year 2020-2022 on Form 8915 E, which has not yet been published. You also have until said date to return any amount of a qualified CRD and the amount returned will not be included in 2020 taxable income. Therefore, NYS has plenty of time to determine if they will conform, but I understand you would like to know sooner rather than later, so suggest you call them.

Submitted by John Schwarz on Thu, 2020-10-01 19:02

Just found the following which means it all gets reported as NYS income this year:In early April, Governor Cuomo signed the New York State 2020-2021 budget (the “NY Budget”), which “decoupled” certain New York State (“NYS”) income tax provisions from the Code provisions impacted by the CARES Act. The CARES Act provides for a new type of distribution from defined contribution retirement plans. This distribution, known as a “coronavirus-related distribution” (the “CRD”), is somewhat similar to a hardship distribution. The CRD allows a “qualified individual” (generally, an individual negatively affected by COVID‑19) to receive a distribution of up to $100,000 from an eligible retirement plan without being subject to the 10% early distribution penalty. Furthermore, the individual can generally include the distribution in income over a three-year period or pay back the distribution to the plan by the end of the three-year period without incurring Federal income taxes.As a result of New York’s decoupling, an individual who receives a CRD will be required to include the entire amount in his/her New York income in 2020 and will not be allowed to include the amount ratably over three years.https://www.olshanlaw.com/blogs-covid-19-legal-resources,tax-decoupling-during-covid-19

Submitted by Alan - IRA critic on Thu, 2020-10-01 20:03

Not surprising, but likely derives from the depleted revenue sources due to Covid in the state, particularly the NY city area.  At least you can still defer the higher federal taxes.

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