If you took a CARES Act IRA withdrawal in 2020, but still need help in filing your taxes, in this video, I look at the mechanics of Form 8915-E and how it fits into your return so that you can spread your taxes out over 3 years!

***Informational and educational purposes only. Please consult with your CPA or tax preparer for confirmation.***

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— About Patrick King CFP® —
Patrick King is a fee-only financial advisor in Atlanta and the Founder of Prana Wealth. Over his career, Patrick has helped CEOs, all-star athletes, Grammy-winning artists, and many others build their wealth, retire sooner, and create a legacy. Patrick enjoys yoga, mountain biking, golf, travel photography, and Clemson football.

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The CARES Act (Coronavirus Aid, Relief, and Economic Security Act) passed in March 2020 aimed to provide financial assistance to Americans struggling during the COVID-19 pandemic. One of the provisions of the CARES Act is related to IRA withdrawals for those impacted by the pandemic. However, as with any tax-related matters, there are some critical considerations to keep in mind.

Under the CARES Act, individuals affected by the pandemic can take up to $100,000 in retirement account distributions without the usual 10% penalty applied to those under age 59 1/2. This includes not only individual retirement accounts (IRAs) but also 401(k)s and other qualified retirement plans.

These distributions may be taken in 2020 alone, and the income taxes due can be spread out over three years: the current year of distribution plus the next two. Additionally, an individual may repay any portion or all of the distribution to a plan or IRA within three years of the distribution.

However, individuals must be mindful that even if they qualify for penalty-free withdrawals, the income tax still applies. They will be taxed based on their regular income tax rate, and given the potential for the distribution amount to boost their taxable income, individuals should prepare to plan for the added tax liability.

Tax forms are important to track these withdrawals efficiently, and Form 8915-E (Qualified Disaster Retirement Plan Distributions and Repayments) is what impacts a taxpayer’s federal income tax return for the year in which the distribution was taken. 

Form 8915-E can be employed by eligible occupants of disaster affected regions who wish to minimize their tax liability after requesting a COVID-19 IRA withdrawal, who have already taken one, or who plan to repay funds to their account to minimize their tax liability after the initial distribution. Form 8915-E has several instructions and revisions over its five page structure, which could prove demanding for those unfamiliar with tax forms.

Ultimately, the CARES Act can provide much-needed relief for those affected by the pandemic, but individuals must understand the tax implications of withdrawing from retirement accounts. Keeping track of this with Form 8915-E can be vital in minimizing the tax burden.