Client took a $100k CRD and subsequently repaid the funds ($100k) to a Roth IRA.
Is this permissible? Or must the funds be repaid to a pre-tax account (i.e. traditional IRA, 401(k), etc)
Doesn’t seem like this would be allowed as the client now has 3 years to report the income (as opposed to the one year with a “normal” Roth conversion) nor is in the “spirit” of the law.
The tax software that I’m familiar with flags as an error any amount indicated as converted to Roth that is also reported on a Form 8915. It only permits amounts in excess of those reported on Forms 8915 to be treated as converted to Roth. To get around that I suppose you could just tell the tax software nothing about the Roth conversion, but that would cause an error in Roth conversion-basis tracking. That still shouldn’t be interpreted as implying that repaying a qualified disaster distribution from a traditional account to a Roth IRA is permissible.
What happens in situations where a client took a CRD from Roth plan funds ( i.e. Roth 401(k))Specifically, how do they report the repayment/roll over to a Roth IRA or back to the plan?
Since the first part rolled over from a distribution from a Roth account is considered to come from the taxable portion of the distribution, the amount repaid would go on Form 8915-E line 24 up to the amount on line 23. If any more than the taxable amount is repaid, that wouldn’t be reported anywhere on a tax return.
Permalink Submitted by Alan - IRA critic on Fri, 2021-02-19 21:27
It is likely not permissable because a rollover to a Roth IRA is not a non taxable transfer. Further, Form 8915 E does not support repayments that are taxable. Client will probably have to report this as a normal Roth conversion, not a CRD reported on Form 8915 E. That said, it would have been helpful if the IRS clearly stated in the instructions to the various disaster distribution forms of the last 15 years, that a Roth conversion was not permitted. I expect quite a few taxpayers will fall victim to this problem when they start to file their 2020 returns and I have not yet heard what the tax programs will do when they receive this data.