CRD Withdrawal
Hello! I’m hoping that you will clarify something for me. I have a question regarding the taxation of a COVID related distribution. An individual who is over the age of 59.5 takes a distribution from the IRA in the amount of $125k. From a taxation standpoint, is she able to elect the 3 year taxation on the $100k and then the “excess” is payed in the current year? Essentially, in year one, the taxpayer pays taxes on $25k plus 1/3 of the $100k, and in years 2 & 3 pays taxes on 1/3 of the $100k, respectively. Of course, the 8915 would need to be filed. This seems reasonable but I was unable to find anything on point. Thanks, in advance, for your guidance.
Permalink Submitted by Alan - IRA critic on Thu, 2020-11-05 17:09
Yes, the excess is not treated as a CRD, and is not reported on the 8915E. The full excess would be taxable. The CRD amount of 100k can be reported ratably over 3 years (% 33,333) per year. Total taxable income for 2020 would then be 58,333. The CRD could be repaid up to 3 years, but the 25k would be subject to the 60 day rollover time limit IF the individual has a rollover available. Any CRD repayment is exempt from the one rollover rule. The above is all handled directly on individual’s tax return. The custodian will issue a single 1099R for 125k coded 7. If there is any IRA basis, Form 8606 would also pro rate the taxable amounts to reflect the basis recovery.
Permalink Submitted by Laura Davitt on Thu, 2020-11-05 21:48
Always helpful information!