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100K courtesy CARES ACT to Roth IRA

Can anyone, I mean ANYONE, take $100K out of their IRA, not pay penalty, but just taxes, and roll over that money to Roth IRA? Something on Yahoo Finance about this, so wondering if there's a play to be made here.

I do have two separate IRAs, I could take one of them and make it a Roth, assuming it makes sense to do so.


  • edited April 2020
    Hi VF

    This is a very short form of info. Lots of info available, including your (I would hope) accounts web site.

    --- When converting a traditional IRA, keep in mind:
    If you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.
    RMD amounts are not eligible to convert to a Roth IRA.
    Generally, converted assets in the Roth IRA must remain there for at least five years to avoid penalties and taxes.
    A distribution from a Roth IRA is tax-free and penalty-free provided that the five-year aging requirement has been satisfied and at least one of the following conditions has been met: you reach age 59½, die, become disabled, or make a qualified first-time home purchase.

    Is the bold above the penalty you're asking about ???

    Also, NO RMD for 2020. Waived by the CARES ACT. Perhaps there is more regarding this in the CARES ACT.

  • There are two rules (that I know of) in CARES regarding $100K distributions from traditional IRAs. If one could combine them, one would have a fantastic loophole on Roth conversions. I don't think it works, though.

    First, the basics. As catch noted, no RMDs for 2020. So the rule that "RMD amounts are not eligible to convert to a Roth IRA" doesn't apply this year since there are no RMDs. So you're free to convert any or all money you take out of a traditional IRA this year.

    There never is an early withdrawal penalty for doing a Roth conversion.

    One of the $100K CARES rules is that instead of being forced to do a rollover within 60 days, you can make an IRA withdrawal and then take up to three years to put the money back into a tax-sheltered account. Even better, you can put it back in parts, e.g. take out $100K, put $50K back in a year, and $50K back two years after that.
    CARES Section 2202(a)(3).

    I haven't been able to interpret this rule as allowing one to withdraw money from a T-IRA and take three years to put the money into a Roth (i.e. do a 60 day Roth rollover conversion). But I'm not an authority.

    The second of the $100K rules says that if you don't put the money back into into a tax-sheltered account: a) you don't pay an early withdrawal penalty, and b) you get to declare the income over three years, 2020, 2021, 2022 ($33.3K/year).
    Section 2202(a)(1) - no early withdrawal penalty
    Section 2202(a)(5) - spread income over three years

    Since there wouldn't be a penalty for a Roth conversion, all that might matter is the ability to spread income over three years. As with the rollover rule, I have a hard time seeing how it could be applied to Roth conversions.

    But if you could apply both of these rules to a Roth conversion, you could take $100K from a traditional IRA, play with it for up to three years, deposit it into a Roth, and spread the taxes over three years, 2020-2022. Sweet deal if the law actually allowed that.
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