"If your clients took coronavirus-related distribution (CRDs)in 2020, they still have time to make repayments to their qualified retirement plan or eligible IRA. Because a relatively small number of qualified individuals took CRDs in 2020, you may handle few CRD repayments, but their proper reporting is no less important for their infrequency." Jodie Norquist is a Consultant with the Ascensus ERISA Compliance Department. As a Consultant, she assists financial organizations with technical compliance matters through Ascensus’ 800 Consulting Service. In addition to consulting, Norquist is responsible for writing and editing Ascensus’ technical and marketing materials. She has received the designations of Certified IRA Professional (CIP) and Certified Health Savings Professional (CHSP). She holds a Bachelor of Science in Mass Communications from Bemidji State University and a Master of Science Degree in Mass Communications from St. Cloud State University. known exception. A qualified individual would have claimed the penalty tax exception on his individual tax return, regardless of how the Form 1099-R was coded. Inherited IRA owners were also eligible to take CRDs in 2020, and could have used code 4, Death, another penalty tax exemption; however, a CRD repayment cannot be made to an inherited IRA. The taxpayer would have reported the CRD and any repayments, if made, on Form 8915E, Qualified 2020 Disaster Retirement Plan Distributions and Repayments. A taxpayer could have claimed CRD status even if the distribution was taken from a retirement plan whose sponsoring employer did not elect to add CRDs as a distributable event. A CRD was not considered a modification of a series of substantially equal periodic payments as an exemption from the 10 percent early distribution penalty tax, so no retroactive penalty would have been applied to previous payments received. Reporting CRD Repayments You may have account owners requesting to make a CRD repayment through 2023. Qualified individuals who took CRDs in 2020 have three years, beginning on the day following the date they received the CRD, to repay the distribution to their eligible retirement plan (such as a 401(k) plan, a 403(b) plan, a governmental 457(b) plan, or an eligible IRA). These CRD amounts are taxed ratably over the three-year period unless the taxpayer elected otherwise. At the time of this writing, the IRS has not officially released repayment reporting requirements. Unofficially, the IRS has indicated to Ascensus that financial organizations should enter the repayment amount in Box 14a, Repayments, with code “DD” (disaster distribution) in Box 14b, Code of IRS Form 5498, IRA Contribution Information. Retirement plan participants and IRA owners report these CRD repayments on the Form 8915 series. This is how other qualified disaster distribution repayments are also reported. 2021 IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs), provides some CRD repayment information for taxpayers, including how to include CRDs in their taxable income each year over a three-year period, along with an example. The amount repaid reduces the amount included in income for the year of the distribution. Taxpayers may repay more than is otherwise includible income for a year. The excess amount may be carried forward to a future year or applied to a previous year in order to reduce the amount included in income for the year (if applied to a previous year, the account owner may need to file an amended return). If you are uncertain whether your client is eligible to make a CRD repayment, remember that it is up to the client to selfcertify to the IRS that he is eligible for repayment, and to you if your organization is going to report amounts as repayments on Form 5498. It’s always a good idea to recommend that your client seek competent tax advice first. Continued from page 23 cbak.com 24 In Touch
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