In 2020 my wife lost her job, and therefore qualifies for CARES act benefits. That year, she converted the remainder of her pre-tax-basis Traditional IRA to her Roth IRA. The transaction, as usual, is early distribution of retirement funds, taxable as income, and exempt from early withdrawal penalty due to immediate conversion to Roth. We've paid the income taxes on the converted amount.
Last night I read up on some details of the CARES act, and it says that you don't have to pay income tax on the distribution if you pay it back into a qualified retirement account (Roth IRA's included).
Well, we took a distribution, and then we put it right back into a qualified retirement account. Is it a stretch to interpret that as doing exactly what the CARES act describes (receive distribution, then pay it back into any qualifying retirement account), and could therefore file an amendment to recover the income taxes paid on the distribution?
I saw one thread here which suggested that conversions were not in scope for the CARES act, but the answer was not certain (sort of "go ahead and try it, and see how IRS likes it!"). Would appreciate if someone could answer with certainty from experience or from "the book". Thanks!
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No, putting it back in to a Roth IRA does not qualify. You have had to put the funds into a Traditional IRA. You won't be able to recoup the tax you paid on the conversion by filing an amended return.
No, putting it back in to a Roth IRA does not qualify. You have had to put the funds into a Traditional IRA. You won't be able to recoup the tax you paid on the conversion by filing an amended return.
Thanks, and sadly, I agree after reading this article just now: Can You Convert A Coronavirus-Related Distribution To A Roth IRA? (forbes.com)
It is with a heavy heart and a trembling hand that I get my checkbook out for the IRS tonight :(
Probably the only thing you could have done is spread the tax over 3 years. So you would claim 1/3 of the distribution/conversion each year. But any withholding on it would only all get credited on the first year. So that probably didn't work out like people thought it would. @dmertz
Roth conversions did not qualify as a Coronavirus-Related Distributions, so the tax liability for the Roth conversion was not eligible to be split over 3 years either.
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