Q. I already took a required minimum distribution (RMD) from my IRA in 2020 before I knew that it was not necessary. Can I now have this withdrawal converted to a Roth?

A. Normally RMDs cannot be converted to a Roth account. However, because of the CARES Act, this spring’s coronavirus relief law, the withdrawal is not considered an RMD. So you can roll it over to a Roth account.

Q. I am a retired federal worker. I participated in the Thrift Savings Plan, and have been taking RMDs ever since I turned 70 1/2. Does the CARES Act apply to me the same way it does to IRA accounts in 2020. In other words, do I have to take an RMD in 2020?

A. No, you don’t. If you have already taken distributions, you may be able to redeposit your funds back into your account. You can go to tsp.gov/index.html for instructions to do this. Or you can call 1-877-968-3778.

Q. I understand that some individuals impacted by coronavirus are eligible to make IRA withdrawals up to $100,000 and repay the withdrawal over three years tax-free. What are the requirements to be able to do this?

A. This option, known as the “coronavirus related distribution” (CRD) is only available under any of these specific conditions: You must have been diagnosed with SARS-CoV-2 or COVID-19 virus by a test approved by the CDC; your spouse or dependent has been diagnosed with SARS-CoV-2 or COVID-19 virus; you experienced “adverse financial consequences” from being quarantined, being furloughed or laid off, or having work hours reduced; you have been unable to work due to lack of child care; or you have closed or reduced hours of a business you owned or operated.

Q. When can I apply for the CRD? Are there restrictions regarding how I spend the funds? Are they taxable?

A. You can take a CRD distribution any time in 2020. This means that any distributions you may have taken, even before the CARES Act was passed, can count as part of the distribution. You can use the proceeds any way you choose, with no restrictions. As long as you re-pay the distributions within a three year period, they are tax-free. After that time, the remaining portion not re-paid will be taxable.

Q. I retired last year, and have earned income from my pension, capital gains, interest and dividends. I recently made IRA contributions for 2019 from these sources of income. I didn’t have any income from wages. I have received different opinions regarding my ability to make IRA contributions from the income I received. Can you clarify?

A. For IRA contributions, the sources of income you referred to are not considered “earned income.” You are allowed to make IRA contributions for 2019 only if you have income from wages or self-employment. Income from pensions, capital gains, interest and dividends don’t qualify as earned income for the purpose of making IRA contributions. Your IRA contributions are considered excess IRA contributions. There are different remedies based on whether you have already filed your tax return for 2019. This is discussed in IRS Publication 590A. I suggest that you review your situation with the trustee/custodian of your IRA to determine what actions you should take. There is a 6% penalty per year if you delay resolving the issue.

On June 23, the IRS issued a notice that it would allow anyone who took RMDs in 2020 to put the distributions back into their retirement accounts by August 31, 2020.

I will be writing a more extensive column covering this.

(Elliot Raphaelson welcomes your questions and comments at raphelliot@gmail.com.)

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