What's the process of using the CARES Act for withdrawing?

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CodeMaster
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What's the process of using the CARES Act for withdrawing?

Post by CodeMaster »

I understand this year we can pull up to 100k by end of this year without penalty and split the taxable amount into next 3 years.

So I was wondering say I had $100k in Fidelity traditional IRA, what exactly is the best and proper process? Do I just sell 100k and transfer to bank then use Turbotax to apply under CARES checkbox and set it to split in next 3 years or something?

Im wondering if Im missing anything in the process so I dont do this wrong. Truly appreciate any and all tips! :beer :sharebeer
Last edited by CodeMaster on Sat Nov 21, 2020 5:53 pm, edited 1 time in total.
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FiveK
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Re: Whats process of using the CARES Act for withdrawling ?

Post by FiveK »

What do you mean by "traditional roth"?
Monsterflockster
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Re: Whats process of using the CARES Act for withdrawling ?

Post by Monsterflockster »

CodeMaster wrote: Sat Nov 21, 2020 1:24 pm I understand this year we can pull up to 100k by end of this year without penalty and split the taxable amount into next 3 years.

So I was wondering say I had $100k in Fidelity traditional roth, what exactly is the best and proper process? Do I just sell 100k and transfer to bank then use Turbotax to apply under CARES checkbox and set it to split in next 3 years or something?

Im wondering if Im missing anything in the process so I dont do this wrong. Truly appreciate any and all tips! :beer :sharebeer
If you have a Roth you do not need a CARES act distribution.

To do this you need to contact your 401k/403b servicer and see if you qualify. You will need to provide proof of reduced income, kids staying home from school, etc. Once approved you provide that document to the servicer and they will distribute funds.

You also have 3 years to put the money back into a retirement account so you do not pay taxes on the distribution. In the case of Vanguard this also requires a form so that the funds are coded correctly and require a check sent.

I would call your servicer so they can walk you through this...
chassis
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Re: Whats process of using the CARES Act for withdrawling ?

Post by chassis »

CodeMaster wrote: Sat Nov 21, 2020 1:24 pm I understand this year we can pull up to 100k by end of this year without penalty and split the taxable amount into next 3 years.

So I was wondering say I had $100k in Fidelity traditional roth, what exactly is the best and proper process? Do I just sell 100k and transfer to bank then use Turbotax to apply under CARES checkbox and set it to split in next 3 years or something?

Im wondering if Im missing anything in the process so I dont do this wrong. Truly appreciate any and all tips! :beer :sharebeer
@CodeMaster Fidelity has an automated process for this. It is very easy. You need to sell securities into your core position, then transfer the portion of the core position you wish to withdraw to the retirement assets side. Then use the automated online click-through process to withdraw funds from the retirement assets web platform.
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CodeMaster
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Re: Whats process of using the CARES Act for withdrawling ?

Post by CodeMaster »

FiveK wrote: Sat Nov 21, 2020 2:32 pm What do you mean by "traditional roth"?
Sorry meant IRA! Fixed now, thanks!
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FiveK
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Re: Whats process of using the CARES Act for withdrawling ?

Post by FiveK »

CodeMaster wrote: Sat Nov 21, 2020 5:54 pm
FiveK wrote: Sat Nov 21, 2020 2:32 pm What do you mean by "traditional roth"?
Sorry meant IRA! Fixed now, thanks!
In that case, yes, you have the right ideas. The specific process for withdrawal may vary by brokerage.

Any decent tax software should - eventually - handle all your choices and the ramifications. That might not happen until sometime in 2021.
Alan S.
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Re: Whats process of using the CARES Act for withdrawling ?

Post by Alan S. »

CodeMaster wrote: Sat Nov 21, 2020 1:24 pm I understand this year we can pull up to 100k by end of this year without penalty and split the taxable amount into next 3 years.

So I was wondering say I had $100k in Fidelity traditional IRA, what exactly is the best and proper process? Do I just sell 100k and transfer to bank then use Turbotax to apply under CARES checkbox and set it to split in next 3 years or something?

Im wondering if Im missing anything in the process so I dont do this wrong. Truly appreciate any and all tips! :beer :sharebeer
First, you must qualify for a CRD. It is not automatic. Then you must make a decision regarding withholding, which is optional. You did not mention repayment of any portion of the CRD, so apparently you want the CRD to pay expenses, not to reposition the funds into another retirement account.

The withholding decision is tricky. Any withholding (10% is the default rate) will be applied for 2020 only, not 2021 or 2022. You could therefore reduce the withholding % to only address the 2020 taxes on 1/3 of the CRD, and deal with the following two years with increased salary withholding or quarterly estimates. Another option is to request enough total withholding to cover all 3 years even though the IRS will apply it to 2020. That would likely produce a 2020 refund, which you could leave in the IRS to be applied to 2021, etc. You will need to think this through and recognize it may be hard to predict your overall tax situation 2 years out.

Once you receive the CRD net of withholding taxes, you will report it on Form 8915 E (not yet released). That is where you show your election to report the distribution ratably over 3 years, or all in 2020 if you wish to. Another decision that need careful planning. You actually have until the due date of your 2020 return (including extensions) to make this decision. If you report the income over 3 years, you will need to attach an 8915 for each year to report that year's income.

Finally, the option to repay runs for 3 years after the distribution date, so you are not locked in to either repaying some part of it or not.
Farmboss
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Re: Whats process of using the CARES Act for withdrawling ?

Post by Farmboss »

I lost my job this year and will have a lot of income in 2020 and probably nothing in 2021.
I am considering taking the 100,000 by completing the form by December 31st. If Fidelity does not send me the check until January 2021 then I could report the 1st installment in 2021 and pay basically no tax. Am I wrong?
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Re: What's the process of using the CARES Act for withdrawing ?

Post by LadyGeek »

I fixed a few typos in the thread title.

Farmboss, Welcome!
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FiveK
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Re: Whats process of using the CARES Act for withdrawling ?

Post by FiveK »

Farmboss wrote: Sat Nov 21, 2020 7:29 pm I lost my job this year and will have a lot of income in 2020 and probably nothing in 2021.
I am considering taking the 100,000 by completing the form by December 31st. If Fidelity does not send me the check until January 2021 then I could report the 1st installment in 2021 and pay basically no tax. Am I wrong?
Unfortunately, yes.

A "Coronavirus-related distribution" must be made "on or after January 1, 2020, and before December 31, 2020."

See https://www.congress.gov/bill/116th-con ... l/748/text.
Farmboss
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Re: What's the process of using the CARES Act for withdrawing?

Post by Farmboss »

Say it was distributed from Fidelity by the 31st but I did not receive the check until 2021.
I am a cash basis taxpayer so from a tax perspective I would noot recognize income until 2021.
:?:
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FiveK
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Re: What's the process of using the CARES Act for withdrawing?

Post by FiveK »

Farmboss wrote: Sat Nov 21, 2020 9:01 pm Say it was distributed from Fidelity by the 31st but I did not receive the check until 2021.
I am a cash basis taxpayer so from a tax perspective I would noot recognize income until 2021.
:?:
The year on the 1099-R documenting the distribution will have to be 2020 in order to meet the CARES act definition of "Coronavirus-related distribution."

That may give you an uphill slog if you try to delay reporting the income into 2021.

See IRS revenue ruling 2019-19 clarifies taxation on retirement plan distributions | Financial Planning for some discussion.
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CodeMaster
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Re: What's the process of using the CARES Act for withdrawing?

Post by CodeMaster »

This is interesting question, is there a way to sell $100k in 2020 and then start the technical tax receiving of it 2021 instead of 2020?
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quisp65
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Re: What's the process of using the CARES Act for withdrawing?

Post by quisp65 »

Just a FYI for those concerned....The 8915-e form should be out soon. Here is some IRS form porn.

https://www.irs.gov/pub/irs-dft/f8915e--dft.pdf
Plan: stock index/roughly 7 years cash investments, one-way balance market highs, slide withdrawal rate for comfort
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FiveK
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Re: What's the process of using the CARES Act for withdrawing?

Post by FiveK »

quisp65 wrote: Sun Nov 22, 2020 7:26 am Just a FYI for those concerned....The 8915-e form should be out soon. Here is some IRS form porn.

https://www.irs.gov/pub/irs-dft/f8915e--dft.pdf
Assuming eligibility and no substantive changes to that form, one could
- Take a $100K distribution in 2020
- Elect to spread the taxable amount over 3 years
- Repay $33,333 before filing your 2020 tax return (not later than the due date, including extensions).

That would provide $0 taxable income for 2020, and $33,333 in 2021 and 2022.

No way (based on that form) to take a $100K distribution in 2020 and have $0 taxable in 2020 while the entire $100K is taxable for 2021.
Farmboss
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Re: What's the process of using the CARES Act for withdrawing?

Post by Farmboss »

I really like the idea of paying back the 33,333 before return is filed for 2020. No way I want any mord income in 2020 but if I have income in 2021 and 2022 then I should be in the 12% bracket :sharebeer
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