IRA withdrawal taxes spread over 3 years

[Bonnie]

Taxpayer's financial advisor asking me if he qualifies to spread taxes over a period of 3 years for an IRA withdrawal that he is anticipating doing. Just asking for planning prior to making withdrawal. I'm not familiar with this and just asking how one qualifies to do this and how it's handled as I've never dealt with this and can't find information

[Gene V]

Retirement Plan Distributions

CORONAVIRUS-RELATED RETIREMENT FUNDS DISTRIBUTIONS (Act Sec 2202(a)) The Act allows qualified taxpayers to make coronavirus-related distributions from qualified plans or IRAs not to exceed $100,000. Act Sec 2202(a)(2).

Qualified Taxpayer – A qualified taxpayer is one (Act Sec 2202(a)(4)(A)):

(I) That is diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention,

(II) Whose spouse or dependent is diagnosed with such virus or disease by such a test, or

(III) Who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as may be determined by the Secretary of the Treasury.

Distribution Period – From January 1, 2020 and before December 31, 2020. (Act Sec 2202(a)(4)(A)(i)) 10% Penalty Waived – Coronavirus-related distributions are not subject to the 10% early withdrawal penalty. (Act Sec 2202(a)(1))

Taxability Spread Over 3 Years – The Act permits the taxpayer to spread the income from a coronavirus-related distribution over a three-year period beginning with the year of distribution or elect out (i.e., report it all in the distribution year). Act Sec 2202(a)(5).

Re-contribution Option – Any amount of the distribution can be re-contributed in one or more re-contributions over the 3-year period beginning on the day after the date of the distribution. If the funds are re-contributed, they are treated as having been transferred via direct trustee-to-trustee transfer within the 60-day limit that would have applied if it were a rollover. Act Sec 2202(a)(3

[Bonnie]

Thank you so very much. Somehow I missed this. It's been a very busy year for me and still not near over

[Uncle Sam]

Let's see how these financial institutions will code 1099R, Box 7 regarding the exception to the penalties. It appears to me that numerous exception codes COVID related will apply and we'll have the misery of having to figure all this stuff out.

[martinezpc]

Does this applies to 401-k and 403-b retirement accounts?

[BP.]

To add to the helpful info in post #2- between the paragraphs (I) & (III) above, the text has the significant word ‘or’ after the omitted Paragraph (II).

[Gene V]

To add to the helpful info in post #2- between the paragraphs (I) & (III) above, the text has the significant word ‘or’ after the omitted Paragraph (II).

I just Edited it

(II) Whose spouse or dependent is diagnosed with such virus or disease by such a test, or

[Rapid Robert]

Upon a quick review, it would appear to me that MOST people whom I know could easily fall into Category (III)

Only if they are normally employed. Retirees on fixed incomes would not fall into that category.

[Burke]

Does this applies to 401-k and 403-b retirement accounts?

Yes, it applies to all 401K & 403b accounts as well, or a combination of all. Total aggregate limit of $100K.