Repayment of IRA Covid-19 distribution after death of IRA owner?

Forum|Forum|4 years ago
February 28, 2022
7 replies
50 views

In 2020 my wife took a Covid-19 Cares act distribution which we chose to pay taxes on over a three-year period, one-third each year (filing married/jointly). We planned to pay it back in full this year and file amended returns, but my spouse passed away in January of 2022. Her IRA is now mine, as the beneficiary. Is there a way for me to repay the distribution for tax year 2021 to minimize taxes? Does TurboTax have the form available to report this?

Best answer by DianeW777

Yes. If you choose, you are allowed to "recontribute" some or all of the coronavirus-related distribution to your retirement plan or IRA at any time during the three years after you take the distribution. If you do so, you will not owe tax on the portion you repay. This rule applies only to the original participant or owner (or a surviving spouse).

IRS FAQs-Coronavirus Related Relief for Retirement Plans and IRAs (Repayment Information)

In general, yes, you may repay all or part of the amount of a coronavirus-related distribution to an eligible retirement plan, provided that you complete the repayment within three years after the date that the distribution was received. If you repay a coronavirus-related distribution, the distribution will be treated as though it were repaid in a direct trustee-to-trustee transfer so that you do not owe federal income tax on the distribution.

If, for example, you receive a coronavirus-related distribution in 2020, you choose to include the distribution amount in income over a 3-year period (2020, 2021, and 2022), and you choose to repay the full amount to an eligible retirement plan in 2022, you may file amended federal income tax returns for 2020 and 2021 to claim a refund of the tax attributable to the amount of the distribution that you included in income for those years, and you will not be required to include any amount in income in 2022.

How to amend (change or correct) a return already filed? (If needed, read instructions carefully before you begin the amendment.)

Inherited from spouse. If a traditional IRA is inherited from a spouse, the surviving spouse generally has the following three choices:

Treat it as his or her own IRA by designating himself or herself as the account owner.
Treat it as his or her own by rolling it over into a traditional IRA, or to the extent it is taxable, into a:
a. Qualified employer plan,
b. Qualified employee annuity plan (section 403(a) plan),
c. Tax-sheltered annuity plan (section 403(b) plan),
d. Deferred compensation plan of a state or local government (section 457(b) plan), or
Treat himself or herself as the beneficiary rather than treating the IRA as his or her own.

MarilynG

Level 15

You will need Form 8915-F to report the repayment (or second installment) of the 2020 CARES distribution in TurboTax.

It's scheduled to be available 03/31/2022.

Click this link for an IRS Draft Copy if you want to look it over beforehand.

So sorry for your loss.

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"

I

imthedoctorAuthor

Level 2

Thanks Marilyn. So is there any problem with me (the survivor) making this repayment of the distribution into my own IRA after the death of my spouse since the money originally came from my wife's IRA which I have now inherited?

D

DianeW777Answer

Level 15

Yes. If you choose, you are allowed to "recontribute" some or all of the coronavirus-related distribution to your retirement plan or IRA at any time during the three years after you take the distribution. If you do so, you will not owe tax on the portion you repay. This rule applies only to the original participant or owner (or a surviving spouse).

IRS FAQs-Coronavirus Related Relief for Retirement Plans and IRAs (Repayment Information)

In general, yes, you may repay all or part of the amount of a coronavirus-related distribution to an eligible retirement plan, provided that you complete the repayment within three years after the date that the distribution was received. If you repay a coronavirus-related distribution, the distribution will be treated as though it were repaid in a direct trustee-to-trustee transfer so that you do not owe federal income tax on the distribution.

If, for example, you receive a coronavirus-related distribution in 2020, you choose to include the distribution amount in income over a 3-year period (2020, 2021, and 2022), and you choose to repay the full amount to an eligible retirement plan in 2022, you may file amended federal income tax returns for 2020 and 2021 to claim a refund of the tax attributable to the amount of the distribution that you included in income for those years, and you will not be required to include any amount in income in 2022.

How to amend (change or correct) a return already filed? (If needed, read instructions carefully before you begin the amendment.)

Inherited from spouse. If a traditional IRA is inherited from a spouse, the surviving spouse generally has the following three choices:

Treat it as his or her own IRA by designating himself or herself as the account owner.
Treat it as his or her own by rolling it over into a traditional IRA, or to the extent it is taxable, into a:
a. Qualified employer plan,
b. Qualified employee annuity plan (section 403(a) plan),
c. Tax-sheltered annuity plan (section 403(b) plan),
d. Deferred compensation plan of a state or local government (section 457(b) plan), or
Treat himself or herself as the beneficiary rather than treating the IRA as his or her own.

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"

D

dmertz

Level 15

It's doubtful that such a repayment is permissible. The closest IRS ruling that I know of is PLR 201123048 where the surviving spouse was prohibited from doing an ordinary rollover in this manner.

PLR 201123048: https://www.irs.gov/pub/irs-wd/1123048.pdf

However, there is also PLR 201514020 that permitted the executor of the decedent's estate to complete an intended rollover of a distribution from a qualified plan, but in that case to an IRA established in the name of the decedent. You might post this question on the IRAHelp discussion forum since the attorney who drafted this PLR posts there: https://www.irahelp.com/forums/ira-discussion-forum It's not clear, though, that similar reasoning would apply to the repayment of a CRD.

PLR 201514020: https://www.irs.gov/pub/irs-wd/201514020.pdf