CARES ACT 3 years tax deferment, Lumpsum distribution from Retirement Plan& Roth

[tmalik]

I have read many posts from several different sites and still confused....

1. My old company where I had 10 years of retirement service has made a Lumpsum distribution offer for $176,600 giving me option of direct roll over to IRA(Roth & traditional) OR Cash payment.
2. My current employer has reduced my pay by 10% due to Covid downturn so i do qualify under CAES for 3-year deferred tax treatment for $100,000.
3. What I want to do is roll over entire $176,600 to Roth while taking advantage of 3 - year tax deferment...i.e.
   • Roll over entire $176,600 in 2020 to Roth.
   • While claiming only $76,600 + 1/3 of $100,000 as income this year (it may be complicated form that i would have to fill but net effect would be this)
   • Add 1/3 of $100,000 as my income in subsequent 2021 & 2022 tax years.
4. I have opted for Cash payment to me so that i would have maximum flexibility.

Question #1: Is That possible and How?
Question #2: Assuming answer to 1st is yes, What will be addition to my taxable income for state taxes:

• Same as federal i.e. $76,600 + 1/3 of $100,000
• OR entire $176,000 will be added

Thanks.
Talat

[RatherBeGolfing]

15 hours ago, tmalik said:

What I want to do is roll over entire $176,600 to Roth while taking advantage of 3 - year tax deferment...i.e.

Can't do it.  The Act itself does not prohibit it, but that is likely an oversight due to the rushed nature of the legislation.  The procedures for taxation and/or repayment of CRD does not provide a mechanism for a Roth conversion with the income included over 3 years.    It is very unlikely that they will publish new  guidance in the last 45 days to allow for provide for ratable inclusion in income for Roth conversion.

 

[tmalik]

1 hour ago, RatherBeGolfing said:

Can't do it.  The Act itself does not prohibit it, but that is likely an oversight due to the rushed nature of the legislation.  The procedures for taxation and/or repayment of CRD does not provide a mechanism for a Roth conversion with the income included over 3 years.    It is very unlikely that they will publish new  guidance in the last 45 days to allow for provide for ratable inclusion in income for Roth conversion.

 

Thank you for your reply..

[Luke Bailey]

tmalik, we had quite a bit of discussion about this. While RBG is correct that there is no guidance saying that you can do it, there is also none that says you cannot, and as RBG says, the statute does not prohibit it. You might want to look for the prior posts on this.