In a CARES act Retirement Withdrawal, if you rollover the withdrawal over 3 years, does that offset the 3 years of taxable income created by the withdrawal? OR does the first rollover offset the last year of taxation?

[dmertz]

A repayment by the due date of the current-year tax return first offsets any portion of the distribution that would otherwise be included in income in the current year, next any income that would otherwise be included in income in the next future year (if the election to have the distribution included in equal parts over 3 years was made), next any income that would otherwise be included in income in the following future year then any remaining amount repaid would require amending the tax return(s) on which that income was previously reported to reduce the amounts previously reported as income.

[macuser_22]

It it qualifies as a coronavirus-related distribution then the amount paid back is treated as a non-taxable rollover and will not be taxable.

[martin3]

Thanks very much! Your assumption is correct. I am assuming one elects to tax over 3 yrs AND one rollovers over in 3 equal annual parts.  That does make sense. If I may ask, where did you get that answer? The only official words I have been able to find are the Jt Committee on Taxation Report of 4-23-20.  I did find this line: "In addition, if a portion of the distribution has not yet been included in income at the time of the contribution, the remaining amount is not includable in income." Is that what you are interpreting or did you find a more expansive interpretation?

[dmertz]

This comes from the method for handling on Form 8915-B the repayment of 2017 disaster distributions.  The section of the CARES Act that permits Coronavirus-Related Distributions (CRDs) is substantially identical to the section of the prior act that allowed the disaster distributions reportable on Form 8915-B and the IRS has indicated that they will be producing Form 8915-E for reporting CRDs, which will almost certainly be substantially the same as Form 8915-B.  These all trace back to the law allowing disaster distributions for Hurricane Katrina in 2005 and the associated Form 8915.

[dmertz]

I'm also referring only to any repayments made after the regular rollover deadline for retirement distributions.  Any amounts of a CRD rolled over by the regular rollover deadline (60 days, but that's been extended to July 15, 2020 for distributions made after January 2020) would be a regular rollover and would not be included in the calculation of the income includible over 3 years in the first place.

[dmertz]

After reviewing Form 8915-B, I've revised my original answer.  Amounts repaid are applied against the current year amount otherwise includible first rather than the last year first, not the other way around.

[martin3]

Thanks very much for the Form references and the history behind it all. That makes sense. I will study the form as soon as I get a chance but I appreciate that you took the time to double check.  Lastly, if I may summarize, IF I elect to have the distribution taxable over 3 years and if I re-contribute or roll over the distribution in 3 equal annual amounts, those two streams  can run in parallel and offset each other with no resulting taxability. Correct?  Thanks again

[dmertz · Accepted solution]

If the entire amount is repaid within 3 years, the entire amount will end up being nontaxable.   Further, if you repay in 3 equal amounts in before the due dates of your 2020, 2021 and 2022 tax returns, no tax will be assessed on this distribution on any of these tax returns.  If you instead repay in equal amounts amounts in 2021, 2022 and 2023 after the due dates of your 2020, 2021 and 2022 tax returns, respectively, you'll initially pay taxes on 1/3 of the distribution on your 2020 tax return and, before the 3-year statute of limitations on a claim of refund of taxes paid on your 2020 tax return expires in 2024, you'll need to amend your 2020 tax return and claim a refund of the tax assessed on the 1/3 reported on that tax return.

Before making a CRD, make sure that you actually qualify to receive a CRD, otherwise the normal rollover deadline applies:  https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-...

[martin3]

That is perfect! Crystal clear!! Thank you very much