@rodaleks wrote:
@MaryK4 , great answer. However, is it still possible to spread the payments if you move outside of the USA (not being a US Citizen nor a Green Card holder) anytime between end of 2020 and 2023 (when the last payment would be due)? Or would you need to pay whatever is pending at once on the next tax filing after leaving the country?
We aren't going to know the precise answer to that question until the IRS releases the official tax forms for 2020 (and later, 2021 and 2022). You will get a 1099-R for the withdrawal no matter what, so my guess is that after you enter the 1099-R, you will get a question "Is this a COVID-related distribution as defined by the CARES act?" and "Do you want to spread the taxes out over 3 years?" If you click yes to both, then 1/3 of the income will be added to your income and the other 2/3 will be shown as a carry-forward on the form.
If you then leave the country and are not a citizen or green card holder, you would need to file a 1040-NR (non-resident tax return) for 2021 and 2022 to report the remaining income and pay the taxes. If you didn't pay, the IRS may not be able to force you to pay, but they can certainly flag your file so that if you ever return to the US or have other US-sourced income, it can be withheld or garnished until you pay your taxes.
It could be that you would be required to pay the remaining 2/3 on your 2021 return, but you will have to wait for the forms to be prepared and the official regulations to be written to see how the IRS handles this situation. (Once the law is enacted, the Treasury Dept has to create regulations to implement the law, and that can sometimes take a long time.)
The other concern, of course, is that if you are using COVID as an excuse to get your money out before retirement (since why leave it in the US for 30 years if you are not a citizen) and the IRS audits you, they could subject you to the 10% penalty for early withdrawal. I have no idea how many audits the IRS will do of CARES act claims. It seems an area ripe for abuse, but they are already overworked, so who knows?
