Retirement Account Idea/Question

[Big Matt]

I wonder if the government has thought about removing the 10% penalty for dipping into retirement accounts before the minimum age requirement. I know you can borrow from them at no cost, but you need to pay them back. It might make sense to lift that penalty during times of crisis like this one. Thoughts?

 

[controller1]

I wonder if the government has thought about removing the 10% penalty for dipping into retirement accounts before the minimum age requirement. I know you can borrow from them at no cost, but you need to pay them back. It might make sense to lift that penalty during times of crisis like this one. Thoughts?

Hardship early withdrawals are already allowed. They are taxed to the participant but they do not have to be repaid to the borrower's account.

Retirement topics - Hardship distributions | Internal Revenue Service

Retirement Topics - Hardship Distributions

www.irs.gov

 

[VacationForever]

Look at the stimulus package. There is provision for early withdrawal for those affected by COVID-19.

 

[rapmarks]

here Is my fantasy,and I mean fantasy, just for one year they let you roll it into a a Roth tax free

 

[VacationForever]

What if I don’t recontribute the CVD?
Another good question. You will be taxed on the CVD amount that you don’t recontribute within the three-year window, but you don’t have to worry about owing the dreaded 10% early withdrawal penalty if you are under age 59½.

You can choose to spread the taxable amount equally over three years, apparently starting with 2020. But here it gets tricky, because the three-year window won’t close until sometime in 2023. Until then, it won’t be clear that you failed to take advantage of the tax-free CVD rollover deal.

So, you may have to amend a prior-year return and report some additional taxable income from the CVD. Details to follow, because I don’t think our beloved Congress gave much thought to this issue when drafting the CARES Act.

You also have the option of simply reporting the taxable income from the CVD on your 2020 Form 1040. You won’t owe the 10% early withdrawal penalty if you are under age 59½.

 

[PigsDad]

@VacationForever -- what does CVD stand for? Thanks!

Kurt

 

[controller1]

@VacationForever -- what does CVD stand for? Thanks!

Kurt

CVD = Coronavirus-related distributions. Not a well-known acronym!

 

[VacationForever]

CVD = Coronavirus-related distributions. Not a well-known acronym!

Yes Coronavirus Distribution. I snipped the part of the article that is relevant to OP's question.

Here is the entire article:

Coronavirus stimulus-package tax relief: Withdraw $100K from your IRA — and repay in 3 years with zero tax liability

Use the money to pay bills, pay down your HELOC, or simply to get through the pandemic.

www.marketwatch.com

 

[Talent312]

I don't want to WD any $$ from our IRA's... don't need it.
Instead, I want to repay the RMD we took earlier this year.
Apparently, this will be allowed... But where to invest it?
.
.

 

[VacationForever]

I don't want to WD any $$ from our IRA's... don't need it.
Instead, I want to repay the RMD we took earlier this year.
Apparently, this will be allowed... But where to invest it?
.
.

Where did you read that this will be allowed? I have been searching for the possibility of doing so and have yet to find an article that says so.

 

[Talent312]

"I want to repay the RMD we took earlier this year. Apparently, this will be allowed."

Where did you read that this will be allowed?

Per Kiplinger's --
"A 2020 distribution taken within the last 60 days, however, can still be put back into an IRA in what is called an indirect rollover, provided you haven’t made any other indirect rollovers in the past year. If you have taken more than one distribution in the past 60 days, those additional distributions could be put into a Roth IRA, using a strategy called an indirect Roth conversion. Although you won’t avoid the tax on those distributions, you’ll have the benefit of letting that money grow in a tax-free Roth account, says Brian Vnak, vice president of advisory services for Wealth Enhancement Group.

For distributions taken more than 60 days ago in 2020, a new strategy exists. Under the CARES Act, those distributions could potentially be repaid into the IRA over the next three years if you can show that the money was withdrawn to cover a coronavirus-related hardship."

-- https://www.kiplinger.com/article/r...s-stimulus-you-can-wait-to-take-your-rmd.html

-- I'm still in the 60-day rollover period, but the end is fast approaching.

 

[VacationForever]

If it can go into ROTH IRA, that would be the route that I would take.