Stimulus eligibility - In-Plan Roth Rollover counted as income?

[tocguy]

I retired in Dec 2018 so 2018 had good income.  All of 2019 I worked on Honey-Dos and had only a small amount of income from an IRA withdrawal. However, I also rolled over a chunk of IRA to Roth to pay taxes on it while they're low.

The Roth rollover money still isn't touchable for several years but it "appears" within AGI sooooo does this count against my stimulus eligibility? Can anyone point me to reliable source of info that addresses this question? From what I can tell, the present Stim plan leaves a gaping hole where new (2019) retirees fall in.

[tocguy]

I've fwd'd this question to my State Senator for assistance. I will share pertinent details of their response here when they become available.

[DanaB27]

Yes, the conversion from traditional IRA to Roth IRA is taxable income and included in your adjusted gross income (AGI).

If you have an AGI of up to $75,000 ($150,000 married filing jointly), you should be eligible for the full amount of the recovery rebate. As your AGI increases, the stimulus amount you get will go down. The stimulus check rebate completely phases out at $99,000 for single taxpayers, $146,500 for those filing as Head of Household and $198,000 for joint filers with no kids.

The stimulus check will be paid this year based on information from your most recent tax return and will be reconciled in tax year 2020 to ensure you received the correct rebate amount. 

[tocguy]

Thank you for responding.

Yes, it is understood that the Roth Rollover is part of AGI. I state so in my question.

Your response describes the underlying reasons FOR my posting the question. I do not understand how it addresses the issue that my question describes, i.e., that stimulus eligibility presently relies on either 2018 tax return OR 2019 tax return. The issue that I am trying to raise is that anyone who had income in 2018 that may exclude them from stimulus eligibility but has not yet filed the (now delayed until July) 2019 tax return but had little actual 2019 income would be skipped over from receiving a stimulus check. This is in conflict with the intent of the stimulus which is to put disposable income into the hands of consumers.

[troy519]

I am glad that I found someone whose concern is the same as ours. My wife and I would like to use our joint 2018 AGI to determine eligibility for the COVID stimulus.  We did some conversion and because of that our AGI exceeded the $150K.   We don't want to file our 2019 until July because we owe the Federal tax.  We are getting $140 refund from the State. With me losing my job early Jan 2020, our joint income is significantly reduced. The stimulus money is going to very helpful right now and we may even have to use it to pay our taxes.

Does anyone know if we can use the 2018 AGI minus the IRA conversion to Roth to be eligible? The Roth conversion was not earned in 2018, it was earned decades prior.

[tocguy]

Hello troy519, et al;

To date, I have not received any new info that answers this question. I can say that my Senator has forwarded it to their contact in the US Treasury and I am awaiting their response.

With that said, your specific situation may be addressed by the Stimulus' waiving of IRA 10% early withdrawal penalties up to $100K. There are many articles describing this feature. Here's one from CNN - https://www.cnbc.com/2020/03/30/op-ed-heres-how-to-take-money-from-retirement-account-under-stimulus...

Take note that this addresses only the early withdrawal penalty. Any tax associated with the IRA withdrawal is still in full force.

[troy519]

Thank you tocguy.

We will wait for the answer from your Senator.   I certainly hope that this will be an exception to the rule.  Thank your for sharing,  I read into the Retirement Relief.  I do qualify due to loss of work and with stock market's performance, I like the loan better but a small one. I need to make sure I can repay it and not to be taxed.  But first, I need to get a job.

[minime_moomey]

I am trying to revive this thread from the dead, as I find myself in a similar situation. I filed 2020 taxes and had a traditional to roth conversion that put our family over the AGI limit (just barely-we were well below prior to the conversion being added). I do not mind paying appropriate taxes on the conversion and all of that process, but I do not see how it is fair that something that has been in my traditional IRA for years and just happened to be converted this year should count as "income" when dispersing the stimulus. I still can not touch this money and as such, it was in no way additional or any support to our family this year as income. I just moved it over and happily paid the taxes on it. Is there a way to still qualify for the stimulus or did the timing of this mess us up? Looking for any options and insight. I appreciate it!

[ReneeM7122]

Unfortunately, sometimes converting from a Traditional to a Roth IRA causes "income."   This is because while Traditional IRAs aren't taxed until the money is withdrawn during retirement, when you convert it to a Roth, it is taxed as ordinary income. Once that "income" is added to your other income, it might push you into a higher marginal federal income tax bracket.

@minime_moomey

[taxjamakarlo]

But how is that fair? What is the recourse?

[LenaH]

If your rollover was in 2019, then you can still qualify for the Recovery Rebate Credit on your 2020 return, if you meet the qualifications. The ability for taxpayers (who did not qualify based on 2019 or earlier tax returns), to get the amount of the stimulus money if their situation had changed in 2020 is the only recourse that was provided under the CARES Act.  This was to ensure that even if taxpayers had higher income in one year, they could still receive assistance. 

If you did not qualify based on 2019 or an earlier return due to a rollover or a "one-off" situation, then you should qualify in 2020 for the Recovery Rebate Credit. 

@taxjamakarlo

[NCperson]

@taxjamakarlo - if it's 'fairness' you are complaining about, then please write your Congressman. I don't write that to be sarcastic or in jest, but that is the way the law was passed.  Congress decided these rules

The 1st two stimulus payments were 'advances on 2020 tax return' meaning EVERYTHING was based on the 2020 tax return results.  If you were strategic about it and understood the rules (most of us didn't at the time!), you could have delayed the rollover that created the taxable event so that the stimulus was secure.

The IRS was authorized by Congress to use 2019 (and if not available 20180 to ESTIMATE the expectations of the 2020 tax return. On that basis, they issued the 1st two stimulus payments,

Then, 23 all completed our 2020 tax return and that is what the stimulus is ACTUALLY based on.

if the ACTUAL is more than the ESTIMATE, that difference is what creates the Recovery Credit on line 30

if the ESTIMATE is more than the ACTUAL, you don't have to pay it back and Line 30 is zero.  the law states you don't have to pay it back.  So if you income was low in 2019 but high in 2020, you probably received the 1st two stimulus payments and there is no requirement to pay it back

does that help at all?