Article Date:
July 2021

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You Took Coronavirus-Related IRA Money Last Year: What Now?

If you’re a traditional IRA owner who was adversely affected by the COVID-19 pandemic last year (2020), you may have been eligible to take a tax-favored coronavirus-related distribution from a traditional IRA.


If so, that privilege was thanks to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).


In this analysis, we will call these tax-favored traditional IRA distributions “CVDs.” Elsewhere, you may see them called “CRDs.”


Whatever they may be called, this analysis explains how to get the best federal income tax results. But first, let’s cover the necessary background information on CVDs. Here goes.


CVD Basics


If you were eligible, you could have taken one or more CVDs from one or more traditional IRAs in 2020, up to a combined limit of $100,000.


You can recontribute the CVD amount(s) back into one or more traditional IRAs within three years of the withdrawal date(s). You treat each withdrawal and later recontribution within the three-year window as a federal-income-tax-free IRA rollover transaction.1 That’s the tax advantage.


The non-tax advantage is that there are no restrictions on how you can use CVD funds. You can use the money to pay bills and recontribute later—within the three-year window—when your financial situation permits. You can help out your adult kids now and recontribute later. Whatever.


So, a CVD can be a useful tax-favored cash-management tool. Nice!


Key point. The favorable tax treatment applies equally to CVDs taken from garden-variety traditional IRAs, SEP-IRAs, and SIMPLE-IRAs.


Original Eligibility Rule


According to the statutory language in the CARES Act, a CVD is a distribution of up to $100,000 from an eligible retirement plan, including an IRA, that is made between January 1, 2020, and December 31, 2020, to an individual2



who was diagnosed with COVID-19 by a test approved by the CDC;


whose spouse or dependent (generally a qualifying child or relative who ... Log in to view full article.

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