Tricks and tips for your IRA

Steve Merrell |

Q: Early this year, I took a required minimum distribution from my IRA. When the pandemic hit and the government suspended RMDs for 2020, I was going to put the money back into my IRA so I wouldn’t have to pay taxes on it. I wanted to get it back into my IRA before the end of the year, but my broker tells me I missed the deadline and I’m out of luck. Is there anything I can do?

A: Your broker is correct about the deadline. That window closed on August 31. However, there may be another way to get your money back into your IRA and avoid the tax.

Required minimum distributions were suspended for 2020 when the Congress passed the CARES Act in March. Another CARES Act provision allows for special coronavirus-related distributions from IRAs. According to the Act, IRA-holders can take withdrawals of as much as $100,000 from their IRA if they have been affected by the coronavirus. Taxes on those withdrawals can be stretched out over three years and, if you repay the distribution to your IRA within three years, you can avoid taxes altogether. Those who are younger than 59½ are even spared the 10 percent early withdrawal penalty.

Sounds pretty good, doesn’t it? The only catch is that the distribution needs to be “coronavirus-related.” Here are the IRS qualifications for that designation.

  1. You, your spouse or a dependent are diagnosed with the virus SARS-CoV-2 or with COVID-19 by a test approved by the Centers for Disease Control;
  2. You experience adverse financial consequences as a result of being quarantined, furloughed or laid off, or having work hours reduced or you are unable to work due to lack of child care due to SARS-CoV-2 or COVID-19; or
  3. You experience adverse financial consequences because a business you own is closed or has reduced hours because of SARS-Cov-2 or COVID-19.

If any of these conditions apply to you, you have three years from the date of your distribution to replace the money in your IRA and avoid the taxes.

Note to readers: If you want to take a coronavirus-related distribution from your IRA or retirement plan and you meet the IRS qualifications listed above, you must take the distribution before year-end.

Q: I didn’t have to take a required distribution from my IRA this year, so my reported income is going to be a lot lower than usual. Is this a good time to do a Roth conversion?

A: Good thinking. Roth conversions are always good to consider when you find yourself temporarily enjoying a lower-than-normal marginal tax rate. It may not always be the best option, but it is always worthwhile to run the numbers.

You should first determine how much additional income you can report before it pushes you into a higher marginal tax bracket. If you are a married-filing-jointly taxpayer, the income threshold between the12 percent and 22 percent marginal tax bracket for 2020 is $80,250. For single taxpayers, the threshold is $40,125. If your adjusted gross income without this year’s RMD is below that threshold, you probably have room to convert some portion of your traditional IRA to a Roth. However, before you can be sure, you need to carefully run the numbers. Your tax professional or fee-only financial advisor can help you figure out if a conversion is right for you.

Once you decide a conversion makes sense, you need to decide how to best implement it. You don’t have to transfer cash. In fact, in some circumstances, it makes a lot more sense to transfer specific assets in-kind.

For example, suppose you decide your income situation can accommodate $40,000 in Roth conversions this year. You can sell securities and transfer cash, or you can transfer an asset in-kind. If the price of the asset is depressed at the time you do the conversion, or if you expect it to grow significantly in the coming years, transferring the asset will likely result in much greater future wealth for you. This is especially true if the asset is illiquid and replacing it after the conversion would be difficult.


Steven C. Merrell  MBA, CFP®, AIF® is a Partner at Monterey Private Wealth, Inc., an independent wealth management firm in Monterey.   He welcomes questions you may have concerning investments, taxes, retirement, or estate planning.  Send your questions to: Steve Merrell, 2340 Garden Road Suite 202, Monterey, CA  93940 or email them to