# Department of the Treasury (2020) > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/agency%3Airs%3A1df69e81e75c2d07 ## Record - **Collection:** Agency decision - **Document type:** Agency decision ## Text Department of the Treasury Internal Revenue Service Publication 590-B Contents What’s New . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Reminders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Cat. No. 66303U Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Distributions from Individual Retirement Arrangements (IRAs) Chapter 1. Traditional IRAs . . . . . . . . . . . . . . . . . . 6 What if You Inherit an IRA? . . . . . . . . . . . . . . . . . 6 When Can You Withdraw or Use Assets? . . . . . . . 7 When Must You Withdraw Assets? (Required Minimum Distributions) . . . . . . . . . . . . . . . . . . 7 Are Distributions Taxable? . . . . . . . . . . . . . . . . 14 What Acts Result in Penalties or Additional Taxes? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 For use in preparing 2020 Returns Chapter 2. Roth IRAs . . . . . . . . . . . . . . . . . . . . . 29 What Is a Roth IRA? . . . . . . . . . . . . . . . . . . . . . 30 Are Distributions Taxable? . . . . . . . . . . . . . . . . 30 Must You Withdraw or Use Assets? . . . . . . . . . . 34 Chapter 3. Coronavirus Relief . . . . . . . . . . . . . . 35 Qualified Coronavirus-Related Distributions . . . . 35 Taxation of Qualified Coronavirus-Related Distributions . . . . . . 35 Repayment and Inclusion in Income of Qualified Coronavirus-Related Distributions . . . . . . . . . . . . . . . . . . . . . . 36 Chapter 4. Disaster-Related Relief . . . . . . . . . . . 36 Qualified Disaster Distributions . . . . . . . . . . . . . 37 Repayment of Qualified Disaster Distributions . . . . . . . . . . . . . . . . . . . . . . 38 Repayment of Qualified 2018, 2019, and 2020 Distributions for the Purchase or Construction of a Main Home . . . . . . . . . 39 How To Get Tax Help . . . . . . . . . . . . . . . . . . . . . . 40 Appendices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 What’s New Get forms and other information faster and easier at: • IRS.gov (English) • IRS.gov/Korean (한국어) • IRS.gov/Spanish (Español) • IRS.gov/Russian (Pусский) • IRS.gov/Chinese (中文) • IRS.gov/Vietnamese (Tiếng Việt) May 13, 2021 Coronavirus-related distributions. Recent legislation contains special rules that provide for tax-favored withdrawals, income inclusion, and repayments for certain individuals who were impacted by the coronavirus in 2020. See Coronavirus Relief, later. Special rules for qualified disaster distributions and repayments expanded. The special rules for qualified disaster distributions and repayments are expanded to apply to those disasters described in the Taxpayer Certainty and Disaster Tax Relief Act of 2020. A qualified disaster is now expanded to include a major disaster that was declared before February 26, 2021, by the President under section 401 of the Stafford Act and that occurred on or after December 28, 2019, and on or before December 27, 2020, and continued no later than January 26, 2021. However, this change does not include a major disaster that has been declared only by reason of COVID-19. See Disaster-Related Relief, later, for more information. RMDs not required in 2020. New legislation temporarily waives the requirement to make required minimum distributions (RMDs) in 2020 in response to the coronavirus pandemic. Whether that distribution is one in a series of RMDs or the initial RMD that would be required by April 1 for a taxpayer reaching age 701/2 in tax year 2019, no RMD is required. See When Must You Withdraw Assets? (Required Minimum Distributions), later, for more information. Qualified birth or adoption distribution. Beginning in tax years after December 31, 2019, you can take a distribution from your IRA without it being subject to the 10% additional tax for early distributions if that distribution is for a qualified birth or adoption. For more information, see Qualified birth or adoption distribution under Exceptions, later. Qualified plan loan offsets. A qualified plan loan offset is a type of plan loan offset that meets certain requirements. In order to be a qualified plan loan offset, the loan, at the time of the offset, must be a loan in good standing and the offset must be solely by reason of (1) the termination of the qualified employer plan, or (2) the failure to meet the repayment terms is because the employee has a severance from employment. If you meet the requirements of a qualified plan loan offset, you have until the due date, including extensions, to file your tax return for the tax year in which the offset occurs to roll over the qualified plan loan offset amount. This revision is effective for tax years beginning January 1, 2018. Modification of required distribution rules for designated beneficiaries. There are new required minimum distribution rules for certain beneficiaries who are designated beneficiaries when the IRA owner dies in a tax year beginning after December 31, 2019. All distributions must be made by the end of the 10th year after death, except for distributions made to certain eligible designated beneficiaries. See 10-year rule, later, for more information. Required minimum distributions (RMDs). For distributions required to be made after December 31, 2019, the age for beginning mandatory distributions is changed to age 72 for IRA owners reaching age 701/2 after December 31, 2019. The required beginning date for IRA owners who haven't reached age 701/2 by the end of 2019 is April 1 of the year following the year of the owner’s 72nd birthday. See When Must You Withdraw Assets? (Required Minimum Distributions), later, for more information. Future Developments For the latest information about developments related to Pub. 590-B, such as legislation enacted after it was published, go to IRS.gov/Pub590B. Page 2 Reminders Tax relief for qualified disaster distributions and repayments. Special rules provide for tax-favored withdrawals and repayments to certain retirement plans (including IRAs) for taxpayers who suffered economic losses as a result of certain major disasters that occurred in 2018 and 2019. Special rules also provide for tax-favored withdrawals and repayments from certain retirement plans (including IRAs) for taxpayers who suffered economic losses as a result of Hurricane Harvey or Tropical Storm Harvey, Hurricane Irma, Hurricane Maria, or the 2017 California wildfires. Disaster tax relief is also available for taxpayers who suffered economic losses as a result of disasters declared by the President under section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act during calendar year 2016. See Disaster-Related Relief, later, for information on these special rules. Simplified employee pension (SEP). SEP IRAs aren't covered in this publication. They are covered in Pub. 560, Retirement Plans for Small Business. Deemed IRAs. A qualified employer plan (retirement plan) can maintain a separate account or annuity under the plan (a deemed IRA) to receive voluntary employee contributions. If the separate account or annuity otherwise meets the requirements of an IRA, it will be subject only to IRA rules. An employee's account can be treated as a traditional IRA or a Roth IRA. For this purpose, a “qualified employer plan” includes: • A qualified pension, profit-sharing, or stock bonus plan (section 401(a) plan); • A qualified employee annuity plan (section 403(a) plan); • A tax-sheltered annuity plan (section 403(b) plan); and • A deferred compensation plan (section 457 plan) maintained by a state, a political subdivision of a state, or an agency or instrumentality of a state or political subdivision of a state. Statement of required minimum distribution (RMD). If an RMD is required from your IRA, the trustee, custodian, or issuer that held the IRA at the end of the preceding year must either report the amount of the RMD to you, or offer to calculate it for you. The report or offer must include the date by which the amount must be distributed. The report is due January 31 of the year in which the minimum distribution is required. It can be provided with the year-end fair market value statement that you normally get each year. No report is required for section 403(b) contracts (generally tax-sheltered annuities) or for IRAs of owners who have died. IRA interest. Although interest earned from your IRA is generally not taxed in the year earned, it isn't tax-exempt interest. Tax on your traditional IRA is generally deferred until you take a distribution. Don't report this interest on Publication 590-B (2020) your return as tax-exempt interest. For more information on tax-exempt interest, see the instructions for your tax return. Net Investment Income Tax (NIIT). For purposes of the NIIT, net investment income doesn't include distributions from a qualified retirement plan (for example, 401(a), 403(a), 403(b), or 457(b) plans, and IRAs). However, these distributions are taken into account when determining the modified adjusted gross income threshold. Distributions from a nonqualified retirement plan are included in net investment income. See Form 8960, Net Investment Income Tax—Individuals, Estates, and Trusts, and its instructions for more information. Photographs of missing children. The IRS is a proud partner with the National Center for Missing & Exploited Children® (NCMEC). Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Comments and suggestions. We welcome your comments about this publication and suggestions for future editions. You can send us comments through IRS.gov/ FormComments. Or, you can write to the Internal Revenue Service, Tax Forms and Publications, 1111 Constitution Ave. NW, IR-6526, Washington, DC 20224. Although we can’t respond individually to each comment received, we do appreciate your feedback and will consider your comments and suggestions as we revise our tax forms, instructions, and publications. Do not send tax questions, tax returns, or payments to the above address. Introduction Ordering tax forms, instructions, and publications. Go to IRS.gov/OrderForms to order current forms, instructions, and publications; call 800-829-3676 to order prior-year forms and instructions. The IRS will process your order for forms and publications as soon as possible. Do not resubmit requests you’ve already sent us. You can get forms and publications faster online. This publication discusses distributions from individual retirement arrangements (IRAs). An IRA is a personal savings plan that gives you tax advantages for setting aside money for retirement. For information about contributions to an IRA, see Pub. 590-A. What are some tax advantages of an IRA? Two tax advantages of an IRA are that: • Contributions you make to an IRA may be fully or partially deductible, depending on which type of IRA you have and on your circumstances; and • Generally, amounts in your IRA (including earnings and gains) aren't taxed until distributed. In some cases, amounts aren't taxed at all if distributed according to the rules. Getting answers to your tax questions. If you have a tax question not answered by this publication or the How To Get Tax Help section at the end of this publication, go to the IRS Interactive Tax Assistant page at IRS.gov/ Help/ITA where you can find topics by using the search feature or viewing the categories listed. Getting tax forms, instructions, and publications. Visit IRS.gov/Forms to download current and prior-year forms, instructions, and publications. Useful Items You may want to see: Publications 590-A Contributions to Individual Retirement Accounts (IRAs) 590-A 560 Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) 560 571 Tax-Sheltered Annuity Plans (403(b) Plans) 571 What's in this publication? This publication discusses traditional and Roth IRAs. It explains the rules for: • Handling an inherited IRA, and • Receiving distributions (making withdrawals) from an IRA. It also explains the penalties and additional taxes that apply when the rules aren't followed. To assist you in complying with the tax rules for IRAs, this publication contains worksheets, sample forms, and tables, which can be found throughout the publication and in the appendices at the back of the publication. How to use this publication. The rules that you must follow depend on which type of IRA you have. Use Table I-1 to help you determine which parts of this publication to read. Also use Table I-1 if you were referred to this publication from instructions to a form. 575 Pension and Annuity Income 575 939 General Rule for Pensions and Annuities 939 976 Disaster Relief 976 Forms (and Instructions) W-4P Withholding Certificate for Pension or Annuity Payments W-4P 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. 1099-R 5304-SIMPLE Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)—Not for Use With a Designated Financial Institution 5304-SIMPLE 5305-S SIMPLE Individual Retirement Trust Account 5305-S 5305-SA SIMPLE Individual Retirement Custodial Account 5305-SA Publication 590-B (2020) Page 3 5305-SIMPLE Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)—for Use With a Designated Financial Institution 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts 5498 IRA Contribution Information 8606 Nondeductible IRAs 8815 Exclusion of Interest From Series EE and I U.S. Savings Bonds Issued After 1989 8839 Qualified Adoption Expenses 8880 Credit for Qualified Retirement Savings Contributions 8915-A Qualified 2016 Disaster Retirement Plan Distributions and Repayments 5305-SIMPLE 5329 5498 8915-B Qualified 2017 Disaster Retirement Plan Distributions and Repayments 8915-B 8915-C Qualified 2018 Disaster Retirement Plan Distributions and Repayments 8915-C 8915-D Qualified 2019 Disaster Retirement Plan Distributions and Repayments 8915-D 8606 8815 8839 8915-E Qualified 2020 Disaster Retirement Plan Distributions and Repayments (Use for Coronavirus-Related and Other Qualified 2020 Disaster Distributions) 8915-E 8880 8915-A Page 4 See How To Get Tax Help, later, for information about getting these publications and forms. Publication 590-B (2020) Table I-1. Using This Publication IF you need information on... THEN see... Traditional IRAs chapter 1. Roth IRAs chapter 2, and parts of chapter 1. Coronavirus Relief chapter 3. Disaster-Related Relief chapter 4. SEP IRAs, SIMPLE IRAs, and 401(k) plans Pub. 560. Coverdell education savings accounts (formerly called education IRAs) Pub. 970. Table I-2. How Are a Traditional IRA and a Roth IRA Different? Question This table shows the differences between traditional and Roth IRAs. Answers in the middle column apply to traditional IRAs. Answers in the right column apply to Roth IRAs. Answer Traditional IRA? Roth IRA? Do I have to start taking distributions when I reach a certain age from a Yes. You must begin receiving required minimum distributions by April 1 of the year following the year you reach age 72. See When Must You Withdraw Assets? (Required Minimum Distributions) in chapter 1. No. If you are the original owner of a Roth IRA, you don't have to take distributions regardless of your age. See Are Distributions Taxable? in chapter 2. However, if you are the beneficiary of a Roth IRA, you may have to take distributions. See Distributions After Owner's Death in chapter 2. How are distributions taxed from a Distributions from a traditional IRA are taxed as ordinary income, but if you made nondeductible contributions, not all of the distribution is taxable. See Are Distributions Taxable? in chapter 1. Distributions from a Roth IRA aren't taxed as long as you meet certain criteria. See Are Distributions Taxable? in chapter 2. Do I have to file a form just because I receive distributions from a Not unless you have ever made a nondeductible contribution to a traditional IRA. If you have, file Form 8606. See Nondeductible Contributions in Pub. 590-A. Yes. File Form 8606 if you received distributions from a Roth IRA (other than a rollover, qualified charitable distribution, one-time distribution to fund an HSA, recharacterization, certain qualified distributions, or a return of certain contributions). Publication 590-B (2020) Page 5 the distribution isn't a required distribution, even if you aren't the sole beneficiary of your deceased spouse's IRA. For more information, see When Must You Withdraw Assets? (Required Minimum Distributions), later. 1. Traditional IRAs Introduction This chapter discusses distributions from an IRA. In this publication, the original IRA (sometimes called an ordinary or regular IRA) is referred to as a “traditional IRA.” A traditional IRA is any IRA that isn't a Roth IRA or a SIMPLE IRA. What if You Inherit an IRA? If you inherit a traditional IRA, you are called a beneficiary. A beneficiary can be any person or entity the owner chooses to receive the benefits of the IRA after he or she dies. Beneficiaries of a traditional IRA must include in their gross income any taxable distributions they receive. Inherited from spouse. If you inherit a traditional IRA from your spouse, you generally have the following three choices. You can: 1. Treat it as your own IRA by designating yourself as the account owner; 2. Treat it as your own by rolling it over into your IRA, or to the extent it is taxable, into a: a. Qualified employer plan, b. Qualified employee annuity plan (section 403(a) plan), c. Tax-sheltered annuity plan (section 403(b) plan), d. Deferred compensation plan of a state or local government (section 457 plan); or 3. Treat yourself as the beneficiary rather than treating the IRA as your own. Treating it as your own. You will be considered to have chosen to treat the IRA as your own if: • Contributions (including rollover contributions) are made to the inherited IRA, or • You don't take the required minimum distribution for a year as a beneficiary of the IRA. You will only be considered to have chosen to treat the IRA as your own if: • You are the sole beneficiary of the IRA, and • You have an unlimited right to withdraw amounts from it. However, if you receive a distribution from your deceased spouse's IRA, you can roll that distribution over into your own IRA within the 60-day time limit, as long as Page 6 Chapter 1 Traditional IRAs Inherited from someone other than spouse. If you inherit a traditional IRA from anyone other than your deceased spouse, you can't treat the inherited IRA as your own. This means that you can't make any contributions to the IRA. It also means you can't roll over any amounts into or out of the inherited IRA. However, you can make a trustee-to-trustee transfer as long as the IRA into which amounts are being moved is set up and maintained in the name of the deceased IRA owner for the benefit of you as beneficiary. Like the original owner, you generally won't owe tax on the assets in the IRA until you receive distributions from it. You must begin receiving distributions from the IRA under the rules for distributions that apply to beneficiaries. IRA with basis. If you inherit a traditional IRA from a person who had a basis in the IRA because of nondeductible contributions, that basis remains with the IRA. Unless you are the decedent's spouse and choose to treat the IRA as your own, you can't combine this basis with any basis you have in your own traditional IRA(s) or any basis in traditional IRA(s) you inherited from other decedents. If you take distributions from both an inherited IRA and your IRA, and each has basis, you must complete separate Forms 8606 to determine the taxable and nontaxable portions of those distributions. Federal estate tax deduction. A beneficiary may be able to claim a deduction for estate tax resulting from certain distributions from a traditional IRA. The beneficiary can deduct the estate tax paid on any part of a distribution that is income in respect of a decedent. He or she can take the deduction for the tax year the income is reported. For information on claiming this deduction, see Estate Tax Deduction under Other Tax Information in Pub. 559. Any taxable part of a distribution that isn't income in respect of a decedent is a payment the beneficiary must include in income. However, the beneficiary can't take any estate tax deduction for this part. A surviving spouse can roll over the distribution to another traditional IRA and avoid including it in income for the year received. More information. For more information about rollovers, required distributions, and inherited IRAs, see: • Rollovers under Can You Move Retirement Plan Assets? in chapter 1 of Pub. 590-A; • When Must You Withdraw Assets? (Required Minimum Distributions), later; and • The discussion of IRA Beneficiaries, later, under When Must You Withdraw Assets? (Required Minimum Distributions). When Can You Withdraw or Use Assets? You can withdraw or use your traditional IRA assets at any time. However, a 10% additional tax generally applies if you withdraw or use IRA assets before you reach age 591/2. This is explained under Age 591/2 Rule under Early Distributions, later. If you were affected by a qualified disaster, see chapter 4. You can generally make a tax-free withdrawal of contributions if you do it before the due date for filing your tax return for the year in which you made them. This means that even if you are under age 591/2, the 10% additional tax may not apply. These distributions are explained in Pub. 590-A. When Must You Withdraw Assets? (Required Minimum Distributions) You can't keep funds in a traditional IRA (including SEP and SIMPLE IRAs) indefinitely. Eventually, they must be distributed. If there are no distributions, or if the distributions aren't large enough, you may have to pay a 50% excise tax on the amount not distributed as required. See Excess Accumulations (Insufficient Distributions), later, under What Acts Result in Penalties or Additional Taxes. The requirements for distributing IRA funds differ, depending on whether you are the IRA owner or the beneficiary of a decedent's IRA. Required minimum distribution (RMD). The amount that must be distributed each year is referred to as the required minimum distribution. Note. A qualified charitable distribution will count towards your required minimum distribution. See Qualified charitable distributions under Are Distributions Taxable, later. Distributions not eligible for rollover. Amounts that must be distributed (required minimum distributions) during a particular year aren't normally eligible for rollover treatment. But see Special rule for RMDs and rollovers in 2020, later. IRA Owners If you are the owner of a traditional IRA, you must generally start receiving distributions from your IRA by April 1 of the year following the year in which you reach age 72. April 1 of the year following the year in which you reach age 72 is referred to as the “required beginning date.” Distributions by the required beginning date. You must receive at least a minimum amount for each year starting with the year you reach age 72. If you don't receive that minimum distribution amount in the year you become age 72, you must receive that distribution by April 1 of the year following the year you become age 72. If an IRA owner dies after reaching age 72, but before April 1 of the next year, no minimum distribution is required for that year because death occurred before the required beginning date. RMDs not required in 2020. You are not required to make RMDs in tax year 2020, whether that distribution is one required after the initial RMD in a series of required distributions or the distribution that would be required by April 1 for a taxpayer reaching age 701/2 in tax year 2019. For tax years 2019 and earlier, you were required TIP to begin receiving distributions by April 1 of the year following the year in which you reached age 701/2. If you reach age 701/2 in tax year 2020 or later, you must generally begin receiving distributions from your IRA by April 1 of the year following the year in which you reach age 72. If you have a RMD for 2020 due by April 1, 2021, TIP you are not required to take that distribution in 2021. You are only required to take the distribution due by December 31, 2021. Special rule for RMDs and rollovers in 2020. If you receive a distribution in 2020, whether an RMD for the initial required distribution or a distribution in a series of RMDs, you can roll that distribution over and the 60-day rollover period is extended in that the end of that 60-day period cannot occur before August 31, 2020. Permitted repayments of RMDs previously distributed from an IRA in 2020. If you received a distribution from your IRA that would have normally counted as an RMD in 2020, and that cannot be rolled over without violating the one-rollover-per-year rule, you can repay the amount back to that IRA as long as the repayment is made no later than August 31, 2020. Even if you begin receiving distributions before you reach age 72, you must begin calculating and CAUTION receiving RMDs by your required beginning date. ! More than minimum received. If, in any year, you receive more than the required minimum distribution for that year, you won't receive credit for the additional amount when determining the required minimum distributions for future years. This doesn't mean that you don't reduce your IRA account balance. It means that if you receive more than your required minimum distribution in one year, you can't treat the excess (the amount that is more than the required minimum distribution) as part of your required minimum distribution for any later year. However, any amount distributed in the year you become age 72 will be credited toward the amount that must be distributed by April 1 of the following year. Chapter 1 Traditional IRAs Page 7 Distributions after the required beginning date. The required minimum distribution for any year after the year you reach age 72 must be made by December 31 of that later year. Distributions from individual retirement accounts. If you are the owner of a traditional IRA that is an individual retirement account, you or your trustee must figure the required minimum distribution for each year. See Figuring the Owner's Required Minimum Distribution below. Distributions from individual retirement annuities. If your traditional IRA is an individual retirement annuity, special rules apply to figuring the required minimum distribution. For more information on rules for annuities, see Regulations section 1.401(a)(9)-6. These regulations can be read in many libraries, and IRS offices, and online at the IRS.gov. Change in marital status. For purposes of figuring your required minimum distribution, your marital status is determined as of January 1 of each year. If your spouse is a beneficiary of your IRA on January 1, he or she remains a beneficiary for the entire year even if you get divorced or your spouse dies during the year. For purposes of determining your distribution period, a change in beneficiary is effective in the year following the year of death or divorce. Change of beneficiary. If your spouse is the sole beneficiary of your IRA, and he or she dies before you, your spouse won't fail to be your sole beneficiary for the year that he or she died solely because someone other than your spouse is named a beneficiary for the rest of that year. However, if you get divorced during the year and change the beneficiary designation on the IRA during that same year, your former spouse won't be treated as the sole beneficiary for that year. Figuring the Owner's Required Minimum Distribution Figure your required minimum distribution for each year by dividing the IRA account balance (defined next) as of the close of business on December 31 of the preceding year by the applicable distribution period or life expectancy. Tables showing distribution periods and life expectancies are found in Appendix B and are discussed later. IRA account balance. The IRA account balance is the amount in the IRA at the end of the year preceding the year for which the required minimum distribution is being figured. Contributions. Contributions increase the account balance in the year they are made. If a contribution for last year isn't made until after December 31 of last year, it increases the account balance for this year, but not for last year. Disregard contributions made after December 31 of last year in determining your required minimum distribution for this year. Page 8 Chapter 1 Traditional IRAs Outstanding rollovers. The IRA account balance is adjusted by outstanding rollovers that aren't in any account at the end of the preceding year. For a rollover from a qualified plan or another IRA that wasn't in any account at the end of the preceding year, increase the account balance of the receiving IRA by the rollover amount valued as of the date of receipt. No recharacterizations of conversions made in 2018 or later. A conversion of a traditional IRA to a Roth IRA, and a rollover from any other eligible retirement plan to a Roth IRA, made in tax years beginning after December 31, 2017, cannot be recharacterized as having been made to a traditional IRA. Distributions. Distributions reduce the account balance in the year they are made. A distribution for last year made after December 31 of last year reduces the account balance for this year, but not for last year. Disregard distributions made after December 31 of last year in determining your required minimum distribution for this year. Distribution period. This is the maximum number of years over which you are allowed to take distributions from the IRA. The period to use for 2021 is listed next to your age as of your birthday in 2021 in Table III in Appendix B. Life expectancy. If you must use Table I, your life expectancy for 2021 is listed in the table next to your age as of your birthday in 2021. If you use Table II, your life expectancy is listed where the row or column containing your age as of your birthday in 2021 intersects with the row or column containing your spouse's age as of his or her birthday in 2021. Both Table I and Table II are in Appendix B. Distributions during your lifetime. Required minimum distributions during your lifetime are based on a distribution period that is generally determined using Table III (Uniform Lifetime) in Appendix B. However, if the sole beneficiary of your IRA is your spouse who is more than 10 years younger than you, see Sole beneficiary spouse who is more than 10 years younger below. To figure the required minimum distribution for 2021, divide your account balance at the end of 2020 by the distribution period from the table. This is the distribution period listed next to your age (as of your birthday in 2021) in Table III in Appendix B, unless the sole beneficiary of your IRA is your spouse who is more than 10 years younger than you. Example. You own a traditional IRA. Your account balance at the end of 2020 was $100,000. You are married and your spouse, who is the sole beneficiary of your IRA, is 6 years younger than you. You turn 75 years old in 2021. You use Table III. Your distribution period is 22.9. Your required minimum distribution for 2021 would be $4,367 ($100,000 ÷ 22.9). Sole beneficiary spouse who is more than 10 years younger. If the sole beneficiary of your IRA is your spouse and your spouse is more than 10 years younger than you, use the life expectancy from Table II (Joint Life and Last Survivor Expectancy) in Appendix B. The life expectancy to use is the joint life and last survivor expectancy listed where the row or column containing your age as of your birthday in 2021 intersects with the row or column containing your spouse's age as of his or her birthday in 2021. You figure your required minimum distribution for 2021 by dividing your account balance at the end of 2020 by the life expectancy from Table II (Joint Life and Last Survivor Expectancy) in Appendix B. Example. You own a traditional IRA. Your account balance at the end of 2020 was $100,000. You are married and your spouse, who is the sole beneficiary of your IRA, is 11 years younger than you. You turn 75 in 2021 and your spouse turns 64. You use Table II. Your joint life and last survivor expectancy is 23.6. Your required minimum distribution for 2021 would be $4,237 ($100,000 ÷ 23.6). Distributions in the year of the owner's death. The required minimum distribution for the year of the owner's death depends on whether the owner died before the required beginning date, defined earlier. If the owner died before the required beginning date, there is no required minimum distribution in the year of the owner's death. For years after the year of the owner's death, see Owner Died Before Required Beginning Date, later, under IRA Beneficiaries. If the owner died on or after the required beginning date, the IRA beneficiaries are responsible for figuring and distributing the owner's required minimum distribution in the year of death. The owner's required minimum distribution for the year of death is generally based on Table III (Uniform Lifetime) in Appendix B. However, if the sole beneficiary of the IRA is the owner's spouse who is more than 10 years younger than the owner, use the life expectancy from Table II (Joint Life and Last Survivor Expectancy). Note. You figure the required minimum distribution for the year in which an IRA owner dies as if the owner lived for the entire year. IRA Beneficiaries The rules for determining required minimum distributions for beneficiaries depend on the following. • The beneficiary is the surviving spouse. • The beneficiary is an individual (other than the surviving spouse). • The beneficiary isn't an individual (for example, the beneficiary is the owner's estate). (But see Trust as beneficiary, later, for a discussion about treating trust beneficiaries as designated beneficiaries.) • The IRA owner died before the required beginning date, or died on or after the required beginning date. The following paragraphs explain the rules for required minimum distributions and beneficiaries. If distributions to the beneficiary from an inherited traditional IRA are less than the required minimum CAUTION distribution for the year, discussed in this chapter under When Must You Withdraw Assets? (Required Minimum Distributions), you may have to pay a 50% excise tax for that year on the amount not distributed as required. For details, see Excess Accumulations (Insufficient Distributions) under What Acts Result in Penalties or Additional Taxes, later in this chapter. ! Surviving spouse. If you are the surviving spouse who is the sole beneficiary of your deceased spouse's IRA, you may elect to be treated as the owner and not as the beneficiary. If you elect to be treated as the owner, you determine the required minimum distribution (if any) as if you were the owner beginning with the year you elect or are deemed to be the owner. For details, see Inherited from spouse under What if You Inherit an IRA, earlier in this chapter. Note. If you become the owner in the year your deceased spouse died, don't determine the required minimum distribution for that year using your life; rather, you must take the deceased owner's required minimum distribution for that year (to the extent it wasn't already distributed to the owner before his or her death). You can never make a rollover contribution of an RMD; however, RMDs are waived for 2020 and CAUTION you can roll over an RMD for 2020. The rollover must be completed within 60 days after the distribution, except that for distributions made before July 2, 2020, the 60-day rollover period was extended to August 31, 2020. Normally, any rollover contribution of an RMD is subject to the 6% tax on excess contributions. See chapter 1 of Pub. 590-A for more information on the tax on excess contributions. ! For any year after the owner’s death, where a sur- TIP viving spouse is the sole designated beneficiary of the account and he or she fails to take a required minimum distribution (if one is required) by December 31 under the rules discussed below for beneficiaries, he or she will be deemed the owner of the IRA. For details, see Inherited from spouse under What if You Inherit an IRA, earlier in this chapter. Date the designated beneficiary is determined. Generally, the designated beneficiary is determined on September 30 of the calendar year following the calendar year of the IRA owner's death. In order to be a designated beneficiary, an individual must be a beneficiary as of the date of death. Any person who was a beneficiary on the date of the owner's death, but isn't a beneficiary on September 30 of the calendar year following the calendar year of the owner's death (because, for example, he or she disclaimed entitlement or received his or her entire benefit), won't be taken into account in determining the designated beneficiary. An individual may be designated as a beneficiary either by the terms of the plan or, if the plan permits, by affirmative election by the employee specifying the beneficiary. Chapter 1 Traditional IRAs Page 9 Note. If a person who is a beneficiary as of the owner's date of death dies before September 30 of the year following the year of the owner's death without disclaiming entitlement to benefits, that individual, rather than his or her successor beneficiary, continues to be treated as a beneficiary for determining the distribution period. For the exception to this rule, see Death of surviving spouse prior to date distributions begin, later. Death of a beneficiary. In general, the beneficiaries of a deceased beneficiary must continue to take the required minimum distributions after the deceased beneficiary's death. However, the beneficiaries of a deceased beneficiary don't calculate required minimum distributions using their own life expectancies. Instead, the deceased beneficiary's remaining interest must be distributed within 10 years after the beneficiary's death, or in some cases within 10 years after the owner's death. See 10-year rule, later. Owner Died Before Required Beginning Date If the owner died before his or her required beginning date (defined earlier), and you are an eligible designated beneficiary, you must generally base required minimum distributions for years after the year of the owner's death using your single life expectancy shown in Table I in Appendix B, as determined under Beneficiary an individual, later. However, there are situations where an individual designated beneficiary may be required to take the entire account by the end of the 10th year following the year of the owner's death. See 10-year rule, later. If the owner’s beneficiary isn’t an individual (for example, if the beneficiary is the owner’s estate), the 5-year rule, discussed later, applies. More than one beneficiary. If an IRA has more than one beneficiary or a trust is named as beneficiary, see Miscellaneous Rules for Required Minimum Distributions, later. Special rules for surviving spouse. If the owner died before his or her required beginning date and the surviving spouse is the sole designated beneficiary, the following rules apply. Eligible designated beneficiaries. An IRA beneficiary is an eligible designated beneficiary if the beneficiary is the owner's surviving spouse, the owner's minor child, a disabled individual, a chronically ill individual, or any other individual who is not more than 10 years younger than the IRA owner. Year of first required distribution. If the owner died before the year in which he or she reached age 72 (age 70½ if the owner was born before July 1, 1949), distributions to the spouse don't need to begin until the year in which the owner would have reached age 72 (or age 70½, if applicable). Owner Died On or After Required Beginning Date Death of surviving spouse prior to date distributions begin. If the surviving spouse dies before December 31 of the year he or she must begin receiving required minimum distributions, the surviving spouse will be treated as if he or she were the owner of the IRA. This rule doesn't apply to the surviving spouse of a surviving spouse. If the owner died on or after his or her required beginning date (defined earlier), and you are an eligible designated beneficiary, you must base required minimum distributions for years after the year of the owner's death on the longer of: • Your single life expectancy shown in Table I in Appendix B, as determined under Beneficiary an individual later; or • The owner's life expectancy as determined under Death on or after required beginning date under Beneficiary not an individual later. Surviving spouse is sole designated beneficiary. If the owner died on or after his or her required beginning date and his or her spouse is the sole designated beneficiary, the life expectancy the spouse must use to figure his or her required minimum distribution may change in a future distribution year. This change will apply where the spouse is older than the deceased owner or the spouse treats the IRA as his or her own. Designated beneficiary who is not an eligible designated beneficiary. Distributions to a designated beneficiary who is not an eligible designated beneficiary must be completed within 10 years of the death of the owner. See 10-year rule, later. Page 10 Chapter 1 Traditional IRAs Example 1. Your spouse died in 2017, at age 65. You are the sole designated beneficiary of your spouse’s traditional IRA. You don't need to take any required minimum distribution until December 31 of 2024, the year your spouse would have reached age 72. If you die prior to that date, you will be treated as the owner of the IRA for purposes of determining the required distributions to your beneficiaries. For example, if you die in 2020, your beneficiaries won't have any required minimum distribution for 2020 (because you, treated as the owner, died prior to your required beginning date). They must start taking distributions under the general rules for an owner who died prior to the required beginning date. Example 2. Same as Example 1, except your sole beneficiary upon your death in 2020 is your surviving spouse. Your surviving spouse can't wait until the year you would have turned 72 to take distributions using his or her life expectancy. Also, if your surviving spouse dies prior to the date he or she is required to take a distribution, he or she isn't treated as the owner of the account. Just like any other individual beneficiary of an owner who dies before the required beginning date, your surviving spouse must start taking distributions in 2021 based on his or her life expectancy (or elect to fully distribute the account under the 10-year rule by the end of 2030). The second surviving spouse from Example 2 TIP above can still elect to treat the IRA as his or her own IRA or roll over any distributions that aren't required minimum distributions into his or her own IRA. See Inherited from spouse under What if You Inherit an IRA, earlier in this chapter. 5-year rule. The 5-year rule requires the IRA beneficiaries who are not taking life expectancy payments to withdraw the entire balance of the IRA by December 31 of the year containing the fifth anniversary of the owner’s death. For example, if the owner died in 2019, the beneficiary would have to fully distribute the plan by December 31, 2024. The beneficiary is allowed, but not required, to take distributions prior to that date. The 5-year rule never applies if the owner died on or after his or her required beginning date. The 5-year rule generally applies to all beneficiaries if the owner died in a year ending before CAUTION 2020. It also applies to beneficiaries who are not individuals (such as a trust) if the owner died in a year ending after 2019. If the owner died in a year ending after 2019 and the beneficiary is an individual, see 10-year rule next. ! 10-year rule. The 10-year rule requires the IRA beneficiaries who are not taking life expectancy payments to withdraw the entire balance of the IRA by December 31 of the year containing the 10th anniversary of the owner’s death. For example, if the owner died in 2020, the beneficiary would have to fully distribute the plan by December 31, 2030. The beneficiary is allowed, but not required, to take distributions prior to that date. The 10-year rule applies if (1) the beneficiary is an eligible designated beneficiary who elects the 10-year rule, if the owner died before reaching his or her required beginning date; or (2) the beneficiary is a designated beneficiary who is not an eligible designated beneficiary, regardless of whether the owner died before reaching his or her required beginning date. For a beneficiary receiving life expectancy payments who is either an eligible designated beneficiary or a minor child, the 10-year rule also applies to the remaining amounts in the IRA upon the death of the eligible designated beneficiary or upon the minor child beneficiary reaching the age of majority, but in either of those cases, the 10-year period ends on the 10th anniversary of the beneficiary's death or the child's attainment of majority. Individual designated beneficiaries. The terms of most IRA plans require individual designated beneficiaries, who are eligible designated beneficiaries, to take required minimum distributions using the life expectancy rules (explained later) unless such beneficiaries elect to take distributions using the 5-year rule or the 10-year rule, whichever rule applies. The deadline for making this election is December 31 of the year the beneficiary must take the first required distribution using his or her life expectancy (or December 31 of the year containing the 5th anniversary (or 10th anniversary for the 10-year rule) of the owner’s death, if earlier). If the individual designated beneficiary is not an eligible designated beneficiary, the beneficiary is required to fully distribute the IRA by the 10th anniversary of the owner's death under the 10-year rule. Beneficiary not an individual. The 5-year rule applies in all cases where there is no individual designated beneficiary by September 30 of the year following the year of the owner’s death or where any beneficiary isn't an individual (for example, the owner named his or her estate as the beneficiary). Review the IRA plan documents or consult with TIP the IRA custodian or trustee for specifics on the 5- or 10-year rule provisions, where applicable, of any particular plan. If the 5-year rule applies, the amount remaining in the IRA, if any, after December 31 of the year CAUTION containing the 5th anniversary of the owner's death is subject to the 50% excise tax detailed in Excess Accumulations (Insufficient Distributions), later. ! If the 10-year rule applies, the amount remaining in the IRA, if any, after December 31 of the year CAUTION containing the 10th anniversary of the owner's death is subject to the 50% excise tax detailed in Excess Accumulations (Insufficient Distributions), later. ! Figuring the Beneficiary's Required Minimum Distribution How you figure the required minimum distribution depends on whether the beneficiary is an individual or some other entity, such as a trust or estate. Beneficiary an individual. If the beneficiary is an individual, figure the required minimum distribution for 2021 as follows. Death on or after required beginning date. Divide the account balance at the end of 2020 by the appropriate life expectancy from Table I (Single Life Expectancy) in Appendix B. Determine the appropriate life expectancy as follows. Spouse as sole designated beneficiary. Use the life expectancy listed in the table next to the spouse's age (as of the spouse's birthday in 2021). Use this life expectancy even if the spouse died in 2021. If the spouse died in 2020 or a prior year, use the life expectancy listed in the table next to the spouse’s age as of his or her birthday in the year he or she died. Reduce the life expectancy by 1 for each year since the year following the spouse’s death. You can't make a rollover contribution of your required minimum distributions in years after the CAUTION owner's death. Such contribution is subject to the 6% tax on excess contributions. See chapter 1 of Pub. 590-A for more information on the tax on excess contributions. ! Chapter 1 Traditional IRAs Page 11 Other designated beneficiary. Use the life expectancy listed in the table next to the beneficiary’s age as of his or her birthday in the year following the year of the owner’s death. Reduce the life expectancy by 1 for each year since the year following the owner’s death. As discussed in Death of a beneficiary, earlier, if the designated beneficiary dies before his or her portion of the account is fully distributed, continue to use the designated beneficiary’s remaining life expectancy to determine the amount of distributions. However, any remaining balance in the account must be distributed within 10 years of the beneficiary's death. Example. Your brother died in 2020 at age 74. You are the designated beneficiary of your brother’s traditional IRA. You are 65 years old in 2021, which is the year following your brother's death. You use Table I and see that your life expectancy in 2021 is 21.0. If the IRA was worth $100,000 at the end of 2020, your required minimum distribution for 2021 would be $4,762 ($100,000 ÷ 21.0). Death before required beginning date. If the IRA owner dies before the required beginning date and the 10-year rule applies, no distribution is required for any year before the 10th year. Which Table Do You Use To Determine Your Required Minimum Distribution? There are three different life expectancy tables. The tables are found in Appendix B of this publication. You use only one of them to determine your required minimum distribution for each traditional IRA. Determine which one to use as follows. Reminder. In using the tables for lifetime distributions, marital status is determined as of January 1 each year. Divorce or death after January 1 is generally disregarded until the next year. However, if you divorce and change the beneficiary designation in the same year, your former spouse can't be considered your sole beneficiary for that year. Table I (Single Life Expectancy). Use Table I for years after the year of the owner's death if either of the following applies. • You are an individual and a designated beneficiary, but not the owner's surviving spouse and sole designated beneficiary. Beneficiary not an individual. If the beneficiary isn't an individual, determine the required minimum distribution for 2021 as follows. • The beneficiary isn't an individual and the owner died Death on or after required beginning date. Divide the account balance at the end of 2020 by the appropriate life expectancy from Table I (Single Life Expectancy) in Appendix B. Use the life expectancy listed next to the owner's age as of his or her birthday in the year of death. Reduce the life expectancy by 1 for each year after the year of death. Surviving spouse. If you are the owner's surviving spouse and sole designated beneficiary, you will also use Table I for your required minimum distributions. However, if the owner hadn't reached age 72 when he or she died, and you don't elect to be treated as the owner of the IRA, you don't have to take distributions until the year in which the owner would have reached age 72. Death before required beginning date. If the IRA owner dies before the required beginning date and the beneficiary isn't an individual (for example, the owner named his or her estate as the beneficiary), the 5-year rule applies. No distribution is required for any year before the fifth year. See 5-year rule, earlier. Table II (Joint Life and Last Survivor Expectancy). Use Table II if you are the IRA owner and your spouse is both your sole designated beneficiary and more than 10 years younger than you. Note. The required beginning date was defined earlier under Distributions by the required beginning date. Example. The owner died in 2020 at the age of 80, and the owner's traditional IRA went to his estate. The account balance at the end of 2020 was $100,000. In 2021, the required minimum distribution would be $10,870 ($100,000 ÷ 9.2 (the owner's life expectancy in the year of death, 10.2, reduced by 1)). If the owner had died in 2020 at the age of 68 (before their required beginning date), the entire account would have to be distributed by the end of 2025. See Death on or after required beginning date and Death before required beginning date, earlier, for more information. Page 12 Chapter 1 Traditional IRAs on or after the required beginning date, defined earlier. Note. Use this table in the year of the owner's death if the owner died after the required beginning date and this is the table that would have been used had he or she not died. Table III (Uniform Lifetime). Use Table III if you are the IRA owner and your spouse isn't both the sole designated beneficiary of your IRA and more than 10 years younger than you. Note. Use this table in the year of the owner's death if the owner died after the required beginning date and this is the table that would have been used had he or she not died. No table. Don't use any of the tables if either the 5-year rule or the 10-year rule (discussed earlier) applies. What Age(s) Do You Use With the Table(s)? Miscellaneous Rules for Required Minimum Distributions The age or ages to use with each table are explained below. The following rules may apply to you. Table I (Single Life Expectancy). If you are a designated beneficiary figuring your first distribution, use your age as of your birthday in the year distributions must begin. This is usually the calendar year immediately following the calendar year of the owner's death. After the first distribution year, reduce your life expectancy by 1 for each subsequent year. If you are the owner's surviving spouse and the sole designated beneficiary, this is generally the year in which the owner would have reached age 72. After the first distribution year, use your age as of your birthday in each subsequent year. Example 1. You are an eligible designated beneficiary figuring your first required minimum distribution. Distributions must begin in 2021. You become age 57 years old in 2021. You use Table I. Example 2. You are the owner's surviving spouse and the sole designated beneficiary. The owner would have turned age 72 in 2021. Distributions begin in 2021. You become 69 years old in 2021. You use Table I. Your distribution period for 2021 is 17.8. Owner's life expectancy. You use the owner’s life expectancy to calculate required minimum distributions when the owner dies on or after the required beginning date and there is no designated beneficiary as of September 30 of the year following the year of the owner’s death. In this case, use the owner’s life expectancy for his or her age as of the owner’s birthday in the year of death and reduce it by 1 for each subsequent year. Or use the owner’s life expectancy in the year of death (reduced by 1 for each subsequent year) if the owner is younger than you. Table II (Joint Life and Last Survivor Expectancy). For your first distribution by the required beginning date, use your age and the age of your designated beneficiary as of your birthdays in the year you become age 72. Your combined life expectancy is at the intersection of your ages. If you are figuring your required minimum distribution for 2021, use your ages as of your birthdays in 2021. For each subsequent year, use your and your spouse's ages as of your birthdays in the subsequent year. Table III (Uniform Lifetime). For your first distribution by your required beginning date, use your age as of your birthday in the year you become age 72. If you are figuring your required minimum distribution for 2021, use your age as of your birthday in 2021. For each subsequent year, use your age as of your birthday in the subsequent year. Installments allowed. The yearly required minimum distribution can be taken in a series of installments (monthly, quarterly, etc.) as long as the total distributions for the year are at least as much as the minimum required amount. More than one IRA. If you have more than one traditional IRA, you must determine a separate required minimum distribution for each IRA. However, you can total these minimum amounts and take the total from any one or more of the IRAs. More than minimum received. If, in any year, you receive more than the required minimum amount for that year, you won't receive credit for the additional amount when determining the minimum required amounts for future years. This doesn't mean that you don't reduce your IRA account balance. It means that if you receive more than your required minimum distribution in one year, you can't treat the excess (the amount that is more than the required minimum distribution) as part of your required minimum distribution for any later year. However, any amount distributed in your age 72 year will be credited toward the amount that must be distributed by April 1 of the following year. Multiple individual beneficiaries. If, as of September 30 of the year following the year in which the owner dies, there is more than one beneficiary, the beneficiary with the shortest life expectancy will be the designated beneficiary if both of the following apply. • All of the beneficiaries are individuals. • The account or benefit hasn't been divided into separate accounts or shares for each beneficiary. Separate accounts. A single IRA can be split into separate accounts or shares for each beneficiary. These separate accounts or shares can be established at any time, either before or after the owner's required beginning date. Generally, these separate accounts or shares are combined for purposes of determining the minimum required distribution. However, these separate accounts or shares won't be combined for required minimum distribution purposes after the death of the IRA owner if the separate accounts or shares are established by the end of the year following the year of the IRA owner's death. The separate account rules can't be used by beneficiaries of a trust. Trust as beneficiary. A trust can't be a designated beneficiary even if it is a named beneficiary. However, the beneficiaries of a trust will be treated as having been designated beneficiaries for purposes of determining required minimum distributions after the owner’s death (or after the death of the owner’s surviving spouse described in Death Chapter 1 Traditional IRAs Page 13 of surviving spouse prior to date distributions begin, earlier) if all of the following are true. • The return of nondeductible contributions, discussed 1. The trust is a valid trust under state law, or would be but for the fact that there is no corpus. Although a conversion of a traditional IRA is considered a rollover for Roth IRA purposes, it isn't CAUTION an exception to the rule that distributions from a traditional IRA are taxable in the year you receive them. Conversion distributions are includible in your gross income subject to this rule and the special rules for conversions explained in chapter 1 of Pub. 590-A. 2. The trust is irrevocable or became, by its terms, irrevocable upon the owner's death. 3. The beneficiaries of the trust who are beneficiaries with respect to the trust's interest in the owner's benefit are identifiable from the trust instrument. 4. The trustee of the trust provides the IRA custodian or trustee with the documentation required by that custodian or trustee. The trustee of the trust should contact the IRA custodian or trustee for details on the documentation required for a specific plan. The deadline for the trustee to provide the beneficiary documentation to the IRA custodian or trustee is October 31 of the year following the year of the owner's death. Trust beneficiary is another trust. If the beneficiary of the trust (which is the beneficiary of the IRA) is another trust and both trusts meet the above requirements, the beneficiaries of the other trust will be treated as having been designated as beneficiaries for purposes of determining the distribution period. Note. The separate account rules, discussed earlier, can't be used by beneficiaries of a trust. You may want to contact a tax advisor to comply TIP with this complicated area of the tax law. Annuity distributions from an insurance company. Special rules apply if you receive distributions from your traditional IRA as an annuity purchased from an insurance company. See Regulations sections 1.401(a)(9)-6 and 54.4974-2. These regulations can be found in many libraries, and IRS offices, and online at IRS.gov. Are Distributions Taxable? In general, distributions from a traditional IRA are taxable in the year you receive them. Failed financial institutions. Distributions from a traditional IRA are taxable in the year you receive them even if they are made without your consent by a state agency as receiver of an insolvent savings institution. This means you must include such distributions in your gross income unless you roll them over. Exceptions. Exceptions to distributions from traditional IRAs being taxable in the year you receive them are: • Rollovers (see chapter 1 of Pub. 590-A); • Qualified charitable distributions, discussed later; • Tax-free withdrawals of contributions (see chapter 1 of Pub. 590-A); and Page 14 Chapter 1 Traditional IRAs later under Distributions Fully or Partly Taxable. ! Qualified charitable distributions. A qualified charitable distribution (QCD) is generally a nontaxable distribution made directly by the trustee of your IRA (other than a SEP or SIMPLE IRA) to an organization eligible to receive tax-deductible contributions. You must be at least age 701/2 when the distribution was made. Also, you must have the same type of acknowledgment of your contribution that you would need to claim a deduction for a charitable contribution. See Substantiation Requirements in Pub. 526. The maximum annual exclusion for QCDs is $100,000. Any QCD in excess of the $100,000 exclusion limit is included in income as any other distribution. If you file a joint return, your spouse can also have a QCD and exclude up to $100,000. The amount of the QCD is limited to the amount of the distribution that would otherwise be included in income. If your IRA includes nondeductible contributions, the distribution is first considered to be paid out of otherwise taxable income. A QCD will count towards your required minimum TIP distribution, discussed earlier. ! You can't claim a charitable contribution deduction for any QCD not included in your income. CAUTION Example. On December 23, 2020, Jeff, age 75, directed the trustee of his IRA to make a distribution of $25,000 directly to a qualified 501(c)(3) organization (a charitable organization eligible to receive tax-deductible contributions). The total value of Jeff's IRA is $30,000 and consists of $20,000 of deductible contributions and earnings and $10,000 of nondeductible contributions (basis). Since Jeff is at least age 701/2 and the distribution is made directly by the trustee to a qualified organization, the part of the distribution that would otherwise be includible in Jeff's income ($20,000) is a QCD. In this case, Jeff has made a QCD of $20,000 (his deductible contributions and earnings). Because Jeff made a distribution of nondeductible contributions from his IRA, he must file Form 8606 with his return. Jeff includes the total distribution ($25,000) on line 4a of Form 1040-SR. He completes Form 8606 to determine the amount to enter on line 4b of Form 1040-SR and the remaining basis in his IRA. Jeff enters -0- on line 4b. This is Jeff's only IRA and he took no other distributions in 2020. He also enters “QCD” next to line 4b to indicate a qualified charitable distribution. After the distribution, his basis in his IRA is $5,000. If Jeff itemizes deductions and files Schedule A (Form 1040) with Form 1040-SR, the $5,000 portion of the distribution attributable to the nondeductible contributions can be deducted as a charitable contribution, subject to AGI limits. He can't take the charitable contribution deduction for the $20,000 portion of the distribution that wasn't included in his income. Fully taxable. If only deductible contributions were made to your traditional IRA (or IRAs, if you have more than one), you have no basis in your IRA. Because you have no basis in your IRA, any distributions are fully taxable when received. See Reporting and Withholding Requirements for Taxable Amounts, later. One-time qualified Health Savings Account (HSA) funding distribution. You may be able to make a qualified HSA funding distribution from your traditional IRA or Roth IRA to your HSA. You can't make this distribution from an ongoing SEP IRA or SIMPLE IRA. For this purpose, a SEP IRA or SIMPLE IRA is ongoing if an employer contribution is made for the plan year ending with or within your tax year in which the distribution would be made. The distribution must be less than or equal to your maximum annual HSA contribution. This distribution must be made directly by the trustee of the IRA to the trustee of the HSA. The distribution isn't included in your income, isn't deductible, and reduces the amount that can be contributed to your HSA. You must make the distribution by the end of the year; the special rule allowing contributions to your HSA for the previous year if made by your tax return filing deadline doesn't apply. The qualified HSA funding distribution is reported on Form 8889 for the year in which the distribution is made. Partly taxable. If you made nondeductible contributions or rolled over any after-tax amounts to any of your traditional IRAs, you have a cost basis (investment in the contract) equal to the amount of those contributions. These nondeductible contributions aren't taxed when they are distributed to you. They are a return of your investment in your IRA. Only the part of the distribution that represents nondeductible contributions and rolled over after-tax amounts (your cost basis) is tax free. If nondeductible contributions have been made or after-tax amounts have been rolled over to your IRA, distributions consist partly of nondeductible contributions (basis) and partly of deductible contributions, earnings, and gains (if there are any). Until all of your basis has been distributed, each distribution is partly nontaxable and partly taxable. One-time transfer. Generally, only one qualified HSA funding distribution is allowed during your lifetime. If you own two or more IRAs, and want to use amounts in multiple IRAs to make a qualified HSA funding distribution, you must first make an IRA-to-IRA transfer of the amounts to be distributed into a single IRA, and then make the one-time qualified HSA funding distribution from that IRA. Testing period rules apply. If at any time during the testing period you cease to meet all requirements to be an eligible individual, the amount of the qualified HSA funding distribution is included in your gross income. The qualified HSA funding distribution is included in gross income in the tax year you first fail to be an eligible individual. This amount is subject to the 10% additional tax (unless the failure is due to disability or death). More information. See Pub. 969 for additional information about this distribution. Ordinary income. Distributions from traditional IRAs that you include in income are taxed as ordinary income. No special treatment. In figuring your tax, you can't use the 10-year tax option or capital gain treatment that applies to lump-sum distributions from qualified retirement plans. If you were affected by a qualified disaster, see TIP chapter 4. Distributions Fully or Partly Taxable Distributions from your traditional IRA may be fully or partly taxable, depending on whether your IRA includes any nondeductible contributions. Form 8606. You must complete Form 8606, and attach it to your return, if you receive a distribution from a traditional IRA and have ever made nondeductible contributions or rolled over after-tax amounts to any of your traditional IRAs. Using the form, you will figure the nontaxable distributions for 2020, and your total IRA basis for 2020 and earlier years. See the illustrated Forms 8606 in this chapter. Note. If you are required to file Form 8606, but you aren't required to file an income tax return, you must still file Form 8606. Complete Form 8606, sign it, and send it to the IRS at the time and place you would otherwise file an income tax return. Figuring the Nontaxable and Taxable Amounts If your traditional IRA includes nondeductible contributions and you received a distribution from it in 2020, you must use Form 8606 to figure how much of your 2020 IRA distribution is tax free. Note. When figuring the nontaxable and taxable amounts of distributions made prior to death in the year the IRA account owner dies, the value of all traditional (including SEP) and SIMPLE IRAs should be figured as of the date of death instead of December 31. Contribution and distribution in the same year. If you received a distribution in 2020 from a traditional IRA and you also made contributions to a traditional IRA for 2020 that may not be fully deductible because of the income limits, you can use Worksheet 1-1 to figure how much of your 2020 IRA distribution is tax free and how much is taxable. Then you can figure the amount of nondeductible contributions to report on Form 8606. Follow the instructions under Reporting your nontaxable distribution on Chapter 1 Traditional IRAs Page 15 Form 8606 next to figure your remaining basis after the distribution. Reporting your nontaxable distribution on Form 8606. To report your nontaxable distribution and to figure the remaining basis in your traditional IRA after distributions, you must complete Worksheet 1-1 before completing Form 8606. Then follow these steps to complete Form 8606. 1. Use Worksheet 1-2 in chapter 1 of Pub. 590-A, or the IRA Deduction Worksheet in the Form 1040 or 1040-SR, or 1040-NR instructions to figure your deductible contributions to traditional IRAs to report on Schedule 1 (Form 1040), line 19. 2. After you complete Worksheet 1-2 in chapter 1 of Pub. 590-A or the IRA Deduction Worksheet in the form instructions, enter your nondeductible contributions to traditional IRAs on line 1 of Form 8606. 3. Complete lines 2 through 5 of Form 8606. 4. If line 5 of Form 8606 is less than line 8 of Worksheet 1-1, complete lines 6 through 15c of Form 8606 and stop here. 5. If line 5 of Form 8606 is equal to or greater than line 8 of Worksheet 1-1, follow instructions 6 and 7 next. Don't complete lines 6 through 12 of Form 8606. 6. Enter the amount from line 8 of Worksheet 1-1 on lines 13 and 17 of Form 8606. 7. Complete line 14 of Form 8606. 8. Enter the amount from line 9 of Worksheet 1-1 (or, if you entered an amount on line 11, the amount from that line) on line 15a of Form 8606. Page 16 Chapter 1 Traditional IRAs Example. Rose Green has made the following contributions to her traditional IRAs. Year 2013 2014 2015 2016 2017 2018 2019 Totals Deductible 2,000 2,000 2,000 1,000 1,000 1,000 700 $9,700 Nondeductible -0-0-0-0-0-0300 $300 Rose needs to complete Worksheet 1-1 to determine if her IRA deduction for 2020 will be reduced or eliminated. In 2020, she makes a $2,000 contribution that may be partly nondeductible. She also receives a distribution of $5,000 for conversion to a Roth IRA. She completed the conversion before December 31, 2020, and didn’t recharacterize any contributions. At the end of 2020, the fair market values of her accounts, including earnings, total $20,000. She didn't receive any tax-free distributions in earlier years. The amount she includes in income for 2020 is figured on Worksheet 1-1. The illustrated Form 8606 for Rose shows the information required when you need to use Worksheet 1-1 to figure your nontaxable distribution. Assume that the $500 entered on Form 8606, line 1, is the amount Rose figured using instructions 1 and 2 given earlier under Reporting your nontaxable distribution on Form 8606. Worksheet 1-1. Figuring the Taxable Part of Your IRA Distribution Keep for Your Records Use only if you made contributions to a traditional IRA for 2020 that may not be fully deductible and have to figure the taxable part of your 2020 distributions to determine your modified AGI. See Limit if Covered by Employer Plan in chapter 1 of Pub. 590-A. Form 8606 and the related instructions will be needed when using this worksheet. Note. When used in this worksheet, the term “outstanding rollover” refers to an amount distributed from a traditional IRA as part of a rollover that, as of December 31, 2020, hadn't yet been reinvested in another traditional IRA, but was still eligible to be rolled over tax free. 1. Enter the basis in your traditional IRAs as of December 31, 2019 ................... 1. 2. Enter the total of all contributions made to your traditional IRAs during 2020 and all contributions made during 2021 that were for 2020, whether or not deductible. Don't include rollover contributions properly rolled over into IRAs. Also, don't include certain returned contributions described in the instructions for line 7 of Form 8606 . . . . . . . . . . . 2. 3. Add lines 1 and 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. 4. Enter the value of all your traditional IRAs as of December 31, 2020 (include any outstanding rollovers from traditional IRAs to other traditional IRAs). Subtract any repayments of qualified disaster distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. 5. Enter the total distributions from traditional IRAs (including amounts converted to Roth IRAs that will be shown on line 16 of Form 8606) received in 2020. (Don't include outstanding rollovers included on line 4 or any rollovers between traditional IRAs completed by December 31, 2020. Also, don't include certain returned contributions described in the instructions for line 7 of Form 8606.) Do include repayments of qualified disaster distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. 6. Add lines 4 and 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. 7. Divide line 3 by line 6. Enter the result as a decimal (rounded to at least three places). If the result is 1.000 or more, enter 1.000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7. 8. Nontaxable portion of the distribution. Multiply line 5 by line 7. Enter the result here and on lines 13 and 17 of Form 8606 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8. 9. Taxable portion of the distribution (before adjustment for conversions). Subtract line 8 from line 5. Enter the result here, and if there are no amounts converted to Roth IRAs, stop here and enter the result on line 15a of Form 8606 . . . . . . . . . . . . . . . 9. 10. Enter the amount included on line 9 that is allocable to amounts converted to Roth IRAs by December 31, 2020. (See Note at the end of this worksheet.) Enter here and on line 18 of Form 8606 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10. 11. Taxable portion of the distribution (after adjustments for conversions). Subtract line 10 from line 9. Enter the result here and on line 15a of Form 8606 . . . . . . . 11. Note. If the amount on line 5 of this worksheet includes an amount converted to a Roth IRA by December 31, 2020, you must determine the percentage of the distribution allocable to the conversion. To figure the percentage, divide the amount converted (from line 16 of Form 8606) by the total distributions shown on line 5. To figure the amounts to include on line 10 of this worksheet and on line 18 of Form 8606, multiply line 9 of the worksheet by the percentage you figured. Chapter 1 Traditional IRAs Page 17 Worksheet 1-1. Figuring the Taxable Part of Your IRA Distribution—Illustrated Use only if you made contributions to a traditional IRA for 2020 that may not be fully deductible and have to figure the taxable part of your 2020 distributions to determine your modified AGI. See Limit if Covered by Employer Plan in chapter 1 of Pub. 590-A. Form 8606 and the related instructions will be needed when using this worksheet. Note. When used in this worksheet, the term “outstanding rollover ” refers to an amount distributed from a traditional IRA as part of a rollover that, as of December 31, 2020, hadn't yet been reinvested in another traditional IRA, but was still eligible to be rolled over tax free. 1. Enter the basis in your traditional IRAs as of December 31, 2019 ....................... 1. 300 2. Enter the total of all contributions made to your traditional IRAs during 2020 and all contributions made during 2021 that were for 2020, whether or not deductible. Don't include rollover contributions properly rolled over into IRAs. Also, don't include certain returned contributions described in the instructions for line 7 of Form 8606 . . . . . . . . . . . . . . . 2. 2,000 3. Add lines 1 and 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. 2,300 4. Enter the value of all your traditional IRAs as of December 31, 2020 (include any outstanding rollovers from traditional IRAs to other traditional IRAs). Subtract any repayments of qualified disaster distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. 20,000 5. Enter the total distributions from traditional IRAs (including amounts converted to Roth IRAs that will be shown on line 16 of Form 8606) received in 2020. (Don't include outstanding rollovers included on line 4 or any rollovers between traditional IRAs completed by December 31, 2020. Also, don't include certain returned contributions described in the instructions for line 7 of Form 8606.) Do include repayments of qualified disaster distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. 5,000 Add lines 4 and 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. 25,000 6. 7. Divide line 3 by line 6. Enter the result as a decimal (rounded to at least three places). If the result is 1.000 or more, enter 1.000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7. 0.092 8. Nontaxable portion of the distribution. Multiply line 5 by line 7. Enter the result here and on lines 13 and 17 of Form 8606 . . . . . . . . 8. 460 9. Taxable portion of the distribution (before adjustment for conversions). Subtract line 8 from line 5. Enter the result here, and if there are no amounts converted to Roth IRAs, stop here and enter the result on line 15a of Form 8606 . . . . . . . . . . . . . . . . . . . . . 9. 4,540 10. Enter the amount included on line 9 that is allocable to amounts converted to Roth IRAs by December 31, 2020. (See Note at the end of this worksheet.) Enter here and on line 18 of Form 8606 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10. 4,540 11. Taxable portion of the distribution (after adjustments for conversions). Subtract line 10 from line 9. Enter the result here and on line 15a of Form 8606 . . . . . . . . . . . 11. -0- Note. If the amount on line 5 of this worksheet includes an amount converted to a Roth IRA by December 31, 2020, you must determine the percentage of the distribution allocable to the conversion. To figure the percentage, divide the amount converted (from line 16 of Form 8606) by the total distributions shown on line 5. To figure the amounts to include on line 10 of this worksheet and on line 18 of Form 8606, multiply line 9 of the worksheet by the percentage you figured. Page 18 Chapter 1 Traditional IRAs Form 8606 Nondeductible IRAs OMB No. 1545-0074 2020 ▶ Go to www.irs.gov/Form8606 for instructions and the latest information. ▶ For coronavirus-related distributions, see the instructions. Department of the Treasury Internal Revenue Service (99) Attachment Sequence No. 48 ▶ Attach to 2020 Form 1040, 1040-SR, or 1040-NR. Your social security number Name. If married, file a separate form for each spouse required to file 2020 Form 8606. See instructions. Rose Green Part I ▲ Fill in Your Address Only if You Are Filing This Form by Itself and Not With Your Tax Return 001-00-0000 Home address (number and street, or P.O. box if mail is not delivered to your home) Apt. no. City, town or post office, state, and ZIP code. If you have a foreign address, also complete the spaces below (see instructions). Foreign country name Foreign province/state/county Foreign postal code Nondeductible Contributions to Traditional IRAs and Distributions From Traditional, SEP, and SIMPLE IRAs Complete this part only if one or more of the following apply. • You made nondeductible contributions to a traditional IRA for 2020. • You took distributions from a traditional, SEP, or SIMPLE IRA in 2020 and you made nondeductible contributions to a traditional IRA in 2020 or an earlier year. For this purpose, a distribution does not include a rollover (other than a repayment of a qualified disaster distribution (see 2020 Forms 8915-C, 8915-D, and 8915-E)), qualified charitable distribution, one-time distribution to fund an HSA, conversion, recharacterization, or return of certain contributions. • You converted part, but not all, of your traditional, SEP, and SIMPLE IRAs to Roth IRAs in 2020 and you made nondeductible contributions to a traditional IRA in 2020 or an earlier year. 1 2 3 4 5 Enter your nondeductible contributions to traditional IRAs for 2020, including those made for 2020 from January 1, 2021, through April 15, 2021. See instructions . . . . . . . . . . . . . Enter your total basis in traditional IRAs. See instructions . . . . . . . . . . . . . . . Add lines 1 and 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . ▶ Enter the amount from line 3 on line 14. No In 2020, did you take a distribution Do not complete the rest of Part I. from traditional, SEP, or SIMPLE IRAs, or make a Roth IRA conversion? ▶ Go to line 4. Yes Enter those contributions included on line 1 that were made from January 1, 2021, through April 15, 2021 Subtract line 4 from line 3 . . . . . . . . . . . . . . . . . . . . . . . . . 6 Enter the value of all your traditional, SEP, and SIMPLE IRAs as of December 31, 2020, plus any outstanding rollovers. Subtract any repayments of qualified disaster distributions (see 2020 Forms 8915-C, 8915-D, and 8915-E) . . . 7 Enter your distributions from traditional, SEP, and SIMPLE IRAs in 2020. Do not include rollovers (other than repayments of qualified disaster distributions (see 2020 Forms 8915-C, 8915-D, and 8915-E)), qualified charitable distributions, a one-time distribution to fund an HSA, conversions to a Roth IRA, certain returned contributions, or recharacterizations of traditional IRA contributions (see instructions) . . . . . . . . . . . . . . . . . . . . 8 9 10 11 12 13 14 15a 500 300 800 4 5 0 800 13 14 15a 460* 340 6 7 Enter the net amount you converted from traditional, SEP, and SIMPLE IRAs to Roth IRAs in 2020. Also enter this amount on line 16 . . . . . . . . . 8 Add lines 6, 7, and 8 . . . . . . . . . . . 9 Divide line 5 by line 9. Enter the result as a decimal rounded to at least 3 × . places. If the result is 1.000 or more, enter “1.000” . . . . . . . . . 10 Multiply line 8 by line 10. This is the nontaxable portion of the amount you converted to Roth IRAs. Also enter this amount on line 17 . . . . . . . 11 Multiply line 7 by line 10. This is the nontaxable portion of your distributions that you did not convert to a Roth IRA . . . . . . . . . . . . . 12 Add lines 11 and 12. This is the nontaxable portion of all your distributions . . . . . . . . . Subtract line 13 from line 3. This is your total basis in traditional IRAs for 2020 and earlier years . Subtract line 12 from line 7 . . . . . . . . . . . . . . . . . . . . . . . . . b Enter the amount on line 15a attributable to qualified disaster distributions from 2020 Forms 8915-C, 8915-D, and 8915-E (see instructions). Also, enter this amount on 2020 Form 8915-C, line 23; 2020 Form 8915-D, line 22; or 2020 Form 8915-E, line 13, as applicable . . . . . . . . . . . . c Taxable amount. Subtract line 15b from line 15a. If more than zero, also include this amount on 2020 Form 1040, 1040-SR, or 1040-NR, line 4b . . . . . . . . . . . . . . . . . . . . Note: You may be subject to an additional 10% tax on the amount on line 15c if you were under age 59½ at the time of the distribution. See instructions. For Privacy Act and Paperwork Reduction Act Notice, see separate instructions. 1 2 3 Cat. No. 63966F 15b 15c 0 Form 8606 (2020) * From Worksheet 1 - 1 in Publication 590-B Chapter 1 Traditional IRAs Page 19 Page 2 Form 8606 (2020) Part II 2020 Conversions From Traditional, SEP, or SIMPLE IRAs to Roth IRAs Complete this part if you converted part or all of your traditional, SEP, and SIMPLE IRAs to a Roth IRA in 2020. 16 17 18 If you completed Part I, enter the amount from line 8. Otherwise, enter the net amount you converted from traditional, SEP, and SIMPLE IRAs to Roth IRAs in 2020 . . . . . . . . . . . . . If you completed Part I, enter the amount from line 11. Otherwise, enter your basis in the amount on line 16 (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . Taxable amount. Subtract line 17 from line 16. If more than zero, also include this amount on 2020 Form 1040, 1040-SR, or 1040-NR, line 4b . . . . . . . . . . . . . . . . . . . . Part III 16 5,000 17 460 18 4,540* Distributions From Roth IRAs Complete this part only if you took a distribution from a Roth IRA in 2020. For this purpose, a distribution does not include a rollover (other than a repayment of a qualified disaster distribution (see 2020 Forms 8915-C, 8915-D, and 8915-E)), qualified charitable distribution, one-time distribution to fund an HSA, recharacterization, or return of certain contributions (see instructions). 19 20 21 22 23 24 25a Enter your total nonqualified distributions from Roth IRAs in 2020, including any qualified first-time homebuyer distributions, and any qualified disaster distributions (see instructions). Also see 2020 Forms 8915-C, 8915-D, and 8915-E . . . . . . . . . . . . . . . . . . . . . . Qualified first-time homebuyer expenses (see instructions). Do not enter more than $10,000 reduced by the total of all your prior qualified first-time homebuyer distributions . . . . . . . . . . Subtract line 20 from line 19. If zero or less, enter -0- . . . . . . . . . . . . . . . . Enter your basis in Roth IRA contributions (see instructions). If line 21 is zero, stop here . . . . . Subtract line 22 from line 21. If zero or less, enter -0- and skip lines 24 and 25. If more than zero, you may be subject to an additional tax (see instructions) . . . . . . . . . . . . . . . . Enter your basis in conversions from traditional, SEP, and SIMPLE IRAs and rollovers from qualified retirement plans to a Roth IRA. See instructions . . . . . . . . . . . . . . . . . . Subtract line 24 from line 23. If zero or less, enter -0- and skip lines 25b and 25c . . . . . . . b Enter the amount on line 25a attributable to qualified disaster distributions from 2020 Forms 8915-C, 8915-D, and 8915-E (see instructions). Also, enter this amount on 2020 Form 8915-C, line 24; 2020 Form 8915-D, line 23; or 2020 Form 8915-E, line 14, as applicable . . . . . . . . . . . . c Taxable amount. Subtract line 25b from line 25a. If more than zero, also include this amount on 2020 Form 1040, 1040-SR, or 1040-NR, line 4b . . . . . . . . . . . . . . . . . . . . Your signature Print/Type preparer’s name Firm’s name ▶ Firm’s address ▶ *From Worksheet 1 - 1 in Publication 590-B Page 20 Chapter 1 ▲ Paid Preparer Use Only 20 21 22 23 24 25a 25b 25c Under penalties of perjury, I declare that I have examined this form, including accompanying attachments, and to the best of my knowledge and belief, it is true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge. ▲ Sign Here Only if You Are Filing This Form by Itself and Not With Your Tax Return 19 Traditional IRAs Preparer’s signature Date Date Check if PTIN self-employed Firm’s EIN ▶ Phone no. Form 8606 (2020) Other Special IRA Distribution Situations Two other special IRA distribution situations are discussed next. Distribution of an annuity contract from your IRA account. You can tell the trustee or custodian of your traditional IRA account to use the amount in the account to buy an annuity contract for you. You aren't taxed when you receive the annuity contract (unless the annuity contract is being converted to an annuity held by a Roth IRA). You are taxed when you start receiving payments under that annuity contract. Tax treatment. If only deductible contributions were made to your traditional IRA since it was opened (this includes all your traditional IRAs, if you have more than one), the annuity payments are fully taxable. If any of your traditional IRAs include both deductible and nondeductible contributions, the annuity payments are taxed as explained earlier under Distributions Fully or Partly Taxable. Cashing in retirement bonds. When you cash in retirement bonds, you are taxed on the entire amount you receive. Unless you have already cashed them in, you will be taxed on the entire value of your bonds in the year in which you reach age 701/2. The value of the bonds is the amount you would have received if you had cashed them in at the end of that year. When you later cash in the bonds, you won't be taxed again. Reporting and Withholding Requirements for Taxable Amounts If you receive a distribution from your traditional IRA, you will receive Form 1099-R, or a similar statement. IRA distributions are shown in boxes 1 and 2a of Form 1099-R. A number or letter code in box 7 tells you what type of distribution you received from your IRA. Number codes. Some of the number codes are explained below. All of the codes are explained in the instructions for recipients on Form 1099-R. 1—Early distribution, no known exception (in most cases, under age 59½). 2—Early distribution, exception applies (under age 59½). 3—Disability. 4—Death. 5—Prohibited transaction. 7—Normal distribution. 8—Excess contributions plus earnings/ excess deferrals (and/or earnings) taxable in 2020. If code 1, 5, or 8 appears on your Form 1099-R, you are probably subject to a penalty or additional CAUTION tax. If code 1 appears, see Early Distributions, later. If code 5 appears, see Prohibited Transactions, later. If code 8 appears, see Excess Contributions in chapter 1 of Pub. 590-A. ! Letter codes. Some of the letter codes are explained below. All of the codes are explained in the instructions for recipients on Form 1099-R. B—Designated Roth account distribution. G—Direct rollover of a distribution to a qualified plan, a section 403(b) plan, a governmental section 457(b) plan, or an IRA. H—Direct rollover of a designated Roth account distribution to a Roth IRA. J—Early distribution from a Roth IRA, no known exception (in most cases, under age 59½). N—Recharacterized IRA contribution made for 2020 and recharacterized in 2020. P—Excess contributions plus earnings/ excess deferrals (and/or earnings) taxable in 2019. Q—Qualified distribution from a Roth IRA. R—Recharacterized IRA contribution made for 2019 and recharacterized in 2020. S—Early distribution from a SIMPLE IRA in the first 2 years, no known exception (under age 59½). T—Roth IRA distribution, exception applies. If the distribution shown on Form 1099-R is from your IRA, SEP IRA, or SIMPLE IRA, the small box in box 7 (labeled IRA/SEP/SIMPLE) should be marked with an “X.” If code J, P, or S appears on your Form 1099-R, you are probably subject to a penalty or additional CAUTION tax. If code J appears, see Early Distributions, later. If code P appears, see Excess Contributions in chapter 1 of Pub. 590-A. If code S appears, see Distributions (Withdrawals) in chapter 3 of Pub. 560. ! Withholding. Federal income tax is withheld from distributions from traditional IRAs unless you choose not to have tax withheld. The amount of tax withheld from an annuity or a similar periodic payment is based on your marital status and the number of withholding allowances you claim on your withholding certificate (Form W-4P). If you haven't filed a certificate, tax will be withheld as if you are a married individual claiming three withholding allowances. Generally, tax will be withheld at a 10% rate on nonperiodic distributions. IRA distributions delivered outside the United States. In general, if you are a U.S. citizen or resident alien and your home address is outside the United States or its possessions, you can't choose exemption from withholding on distributions from your traditional IRA. To choose exemption from withholding, you must certify to the payer under penalties of perjury that you aren't a Chapter 1 Traditional IRAs Page 21 U.S. citizen, a resident alien of the United States, or a tax-avoidance expatriate. Even if this election is made, the payer must withhold tax at the rates prescribed for nonresident aliens. More information. For more information on withholding on pensions and annuities, see Pensions and Annuities in chapter 1 of Pub. 505. For more information on withholding on nonresident aliens and foreign entities, see Pensions, Annuities, and Alimony under Withholding on Specific Income in Pub. 515. Reporting taxable distributions on your return. Report fully taxable distributions, including early distributions, on Form 1040, 1040-SR, or 1040-NR, line 4b (no entry is required on line 4a). If only part of the distribution is taxable, enter the total amount on Form 1040, 1040-SR, or 1040-NR, line 4a, and enter the taxable part on Form 1040, 1040-SR, or 1040-NR, line 4b. Estate tax. Generally, the value of an annuity or other payment receivable by any beneficiary of a decedent's traditional IRA that represents the part of the purchase price contributed by the decedent (or by his or her former employer(s)) must be included in the decedent's gross estate. For more information, see the instructions for Form 706, Schedule I. What Acts Result in Penalties or Additional Taxes? The tax advantages of using traditional IRAs for retirement savings can be offset by additional taxes and penalties if you don't follow the rules. There are additions to the regular tax for using your IRA funds in prohibited transactions. There are also additional taxes for the following activities. • Investing in collectibles. • Having unrelated business income. • Taking early distributions. • Allowing excess amounts to accumulate (failing to take required distributions). • Making excess contributions. There are penalties for overstating the amount of nondeductible contributions and for failure to file Form 8606, if required. This chapter discusses those acts (relating to distributions) that you should avoid and the additional taxes and other costs, including loss of IRA status, that apply if you don't avoid those acts. Prohibited Transactions Generally, a prohibited transaction is any improper use of your traditional IRA account or annuity by you, your beneficiary, or any disqualified person. Page 22 Chapter 1 Traditional IRAs Disqualified persons include your fiduciary and members of your family (spouse, ancestor, lineal descendant, and any spouse of a lineal descendant). The following are some examples of prohibited transactions with a traditional IRA. • Borrowing money from it. • Selling property to it. • Using it as security for a loan. • Buying property for personal use (present or future) with IRA funds. If your IRA invested in nonpublicly traded assets or assets that you directly control, the risk of enCAUTION gaging in a prohibited transaction in connection with your IRA may be increased. ! Fiduciary. For these purposes, a fiduciary includes anyone who does any of the following. • Exercises any discretionary authority or discretionary control in managing your IRA or exercises any authority or control in managing or disposing of its assets. • Provides investment advice to your IRA for a fee, or has any authority or responsibility to do so. • Has any discretionary authority or discretionary responsibility in administering your IRA. Effect on an IRA account. Generally, if you or your beneficiary engages in a prohibited transaction in connection with your traditional IRA account at any time during the year, the account stops being an IRA as of the first day of that year. Effect on you or your beneficiary. If your account stops being an IRA because you or your beneficiary engaged in a prohibited transaction, the account is treated as distributing all its assets to you at their fair market values on the first day of the year. If the total of those values is more than your basis in the IRA, you will have a taxable gain that is includible in your income. For information on figuring your gain and reporting it in income, see Are Distributions Taxable, earlier. The distribution may be subject to additional taxes or penalties. Borrowing on an annuity contract. If you borrow money against your traditional IRA annuity contract, you must include in your gross income the fair market value of the annuity contract as of the first day of your tax year. You may have to pay the 10% additional tax on early distributions, discussed later. Pledging an account as security. If you use a part of your traditional IRA account as security for a loan, that part is treated as a distribution and is included in your gross income. You may have to pay the 10% additional tax on early distributions, discussed later. Trust account set up by an employer or an employee association. Your account or annuity doesn't lose its IRA treatment if your employer or the employee association with whom you have your traditional IRA engages in a prohibited transaction. 3. During the year, the total fair market value of the payments you receive isn't more than: Owner participation. If you participate in the prohibited transaction with your employer or the association, your account is no longer treated as an IRA. a. $10 for IRA deposits of less than $5,000, or Taxes on prohibited transactions. If someone other than the owner or beneficiary of a traditional IRA engages in a prohibited transaction, that person may be liable for certain taxes. In general, there is a 15% tax on the amount of the prohibited transaction and a 100% additional tax if the transaction isn't corrected. Loss of IRA status. If the traditional IRA ceases to be an IRA because of a prohibited transaction by you or your beneficiary, you or your beneficiary isn’t liable for these excise taxes. However, you or your beneficiary may have to pay other taxes as discussed under Effect on you or your beneficiary, earlier. Exempt Transactions The Department of Labor has authority to grant administrative exemptions from the prohibited transaction provisions of ERISA and the Code for a class of transactions or for individual transactions. In order to grant an administrative exemption, the Department must make the following three determinations. 1. The exemption must be administratively feasible. 2. In the interest of the plan and its participants and beneficiaries. 3. Protective of the rights of plan participants and beneficiaries. For additional information on prohibited transaction exemptions, see the Department of Labor publication, Exemption Procedures under Federal Pension Law. Transactions Not Prohibited The following two types of transactions aren't prohibited transactions if they meet the requirements that follow. • Payments of cash, property, or other consideration by the sponsor of your traditional IRA to you (or members of your family). • Your receipt of services at reduced or no cost from the bank where your traditional IRA is established or maintained. Payments of cash, property, or other consideration. Even if a sponsor makes payments to you or your family, there is no prohibited transaction if all three of the following requirements are met. 1. The payments are for establishing a traditional IRA or for making additional contributions to it. 2. The IRA is established solely to benefit you, your spouse, and your or your spouse's beneficiaries. b. $20 for IRA deposits of $5,000 or more. If the consideration is group-term life insurance, requirements (1) and (3) don't apply if no more than $5,000 of the face value of the insurance is based on a dollar-for-dollar basis on the assets in your IRA. Services received at reduced or no cost. Even if a sponsor provides services at reduced or no cost, there is no prohibited transaction if all of the following requirements are met. • The traditional IRA qualifying you to receive the services is established and maintained for the benefit of you, your spouse, and your or your spouse's beneficiaries. • The bank itself can legally offer the services. • The services are provided in the ordinary course of business by the bank (or a bank affiliate) to customers who qualify but don't maintain an IRA (or a Keogh plan). • The determination, for a traditional IRA, of who quali- fies for these services is based on an IRA (or a Keogh plan) deposit balance equal to the lowest qualifying balance for any other type of account. • The rate of return on a traditional IRA investment that qualifies isn't less than the return on an identical investment that could have been made at the same time at the same branch of the bank by a customer who isn't eligible for (or doesn't receive) these services. Investment in Collectibles If your traditional IRA invests in collectibles, the amount invested is considered distributed to you in the year invested. You may have to pay the 10% additional tax on early distributions, discussed later. Any amounts that were considered to be distributed when the investment in the collectible was made, and which were included in your income at that time, aren't included in your income when the collectible is actually distributed from your IRA. Collectibles. These include: • Artworks, • Rugs, • Antiques, • Metals, • Gems, • Stamps, • Coins, • Alcoholic beverages, and Chapter 1 Traditional IRAs Page 23 • Certain other tangible personal property. Exception. Your IRA can invest in one, one-half, one-quarter, or one-tenth ounce U.S. gold coins, or one-ounce silver coins minted by the Treasury Department. It can also invest in certain platinum coins and certain gold, silver, palladium, and platinum bullion. Unrelated Business Income An IRA is subject to tax on unrelated business income if it carries on an unrelated trade or business. An unrelated trade or business means any trade or business regularly carried on by the IRA or by a partnership of which it is a member, and not substantially related to the IRA’s exempt purpose or function. If the IRA has $1,000 or more of unrelated trade or business gross income, the IRA must file a Form 990-T, Exempt Organization Business Income Tax Return. An IRA trustee is permitted to file Form 990-T on behalf of the IRA. In the case of an IRA that operates on a calendar year, the Form 990-T must be filed by the 15th day of April following the close of the calendar year. In the case of an IRA that operates on a fiscal year, the Form 990-T must be filed by the 15th day of the 4th month following the close of the fiscal year. See Pub. 598 for more information. Early Distributions You must include early distributions of taxable amounts from your traditional IRA in your gross income. Early distributions are also subject to an additional 10% tax, as discussed later. Early distributions defined. Early distributions are generally amounts distributed from your traditional IRA account or annuity before you are age 591/2, or amounts you receive when you cash in retirement bonds before you are age 591/2. If you were affected by a qualified disaster, see TIP chapter 4. Age 591/2 Rule Generally, if you are under age 591/2, you must pay a 10% additional tax on the distribution of any assets (money or other property) from your traditional IRA. Distributions before you are age 591/2 are called early distributions. The 10% additional tax applies to the part of the distribution that you have to include in gross income. It is in addition to any regular income tax on that amount. A number of exceptions to this rule are discussed later under Exceptions. Also see Contributions Returned Before Due Date of Return in chapter 1 of Pub. 590-A. After age 591/2 and before age 72. After you reach age 591/2, you can receive distributions without having to pay the 10% additional tax. Even though you can receive distributions after you reach age 591/2, distributions aren't rePage 24 Chapter 1 Traditional IRAs quired until you reach age 72. See When Must You Withdraw Assets? (Required Minimum Distributions), earlier. Exceptions There are several exceptions to the age 591/2 rule. Even if you receive a distribution before you are age 591/2, you may not have to pay the 10% additional tax if you are in one of the following situations. • You have unreimbursed medical expenses that are more than 7.5% of your adjusted gross income. • The distributions aren't more than the cost of your medical insurance due to a period of unemployment. • You are totally and permanently disabled. • You are the beneficiary of a deceased IRA owner. • You are receiving distributions in the form of an annuity. • The distributions aren't more than your qualified higher education expenses. • You use the distributions to buy, build, or rebuild a first home. • The distribution is due to an IRS levy of the qualified plan. • The distribution is a qualified reservist distribution. • The distribution is a qualified birth or adoption distribution. Most of these exceptions are explained below. Note. Distributions that are timely and properly rolled over, as discussed in chapter 1 of Pub. 590-A, aren't subject to either regular income tax or the 10% additional tax. Certain withdrawals of excess contributions after the due date of your return are also tax free and therefore not subject to the 10% additional tax. (See Excess Contributions Withdrawn After Due Date of Return in chapter 1 of Pub. 590-A.) This also applies to transfers incident to divorce, as discussed under Can You Move Retirement Plan Assets? in chapter 1 of Pub. 590-A. Receivership distributions. Early distributions (with or without your consent) from savings institutions placed in receivership are subject to this tax unless one of the above exceptions applies. This is true even if the distribution is from a receiver that is a state agency. Unreimbursed medical expenses. Even if you are under age 591/2, you don't have to pay the 10% additional tax on distributions that aren't more than: • The amount you paid for unreimbursed medical expenses during the year of the distribution, minus • 7.5% of your adjusted gross income (defined next) for the year of the distribution. You can only take into account unreimbursed medical expenses that you would be able to include in figuring a deduction for medical expenses on Schedule A (Form 1040). You don't have to itemize your deductions to take advantage of this exception to the 10% additional tax. Adjusted gross income. This is the amount on Form 1040, 1040-SR, or 1040-NR, line 11. Medical insurance. Even if you are under age 591/2, you may not have to pay the 10% additional tax on distributions during the year that aren't more than the amount you paid during the year for medical insurance for yourself, your spouse, and your dependents. You won't have to pay the tax on these amounts if all of the following conditions apply. • You lost your job. • You received unemployment compensation paid un- der any federal or state law for 12 consecutive weeks because you lost your job. • You receive the distributions during either the year you received the unemployment compensation or the following year. • You receive the distributions no later than 60 days after you have been reemployed. Disabled. If you become disabled before you reach age 591/2, any distributions from your traditional IRA because of your disability aren't subject to the 10% additional tax. You are considered disabled if you can furnish proof that you can't do any substantial gainful activity because of your physical or mental condition. A physician must determine that your condition can be expected to result in death or to be of long, continued, and indefinite duration. Beneficiary. If you die before reaching age 591/2, the assets in your traditional IRA can be distributed to your beneficiary or to your estate without either having to pay the 10% additional tax. However, if you inherit a traditional IRA from your deceased spouse and elect to treat it as your own (as discussed under What if You Inherit an IRA, earlier), any distribution you later receive before you reach age 591/2 may be subject to the 10% additional tax. Annuity. You can receive distributions from your traditional IRA that are part of a series of substantially equal payments over your life (or your life expectancy), or over the lives (or the joint life expectancies) of you and your beneficiary, without having to pay the 10% additional tax, even if you receive such distributions before you are age 591/2. You must use an IRS-approved distribution method and you must take at least one distribution annually for this exception to apply. The “required minimum distribution method,” when used for this purpose, results in the exact amount required to be distributed, not the minimum amount. There are two other IRS-approved distribution methods that you can use. They are generally referred to as the “fixed amortization method” and the “fixed annuitization method.” These two methods aren't discussed in this publication because they are more complex and generally require professional assistance. For information on these methods, see Revenue Ruling 2002-62, which is on page 710 of Internal Revenue Bulletin 2002-42 at IRS.gov/pub/irs-irbs/irb02-42.pdf. Recapture tax for changes in distribution method under equal payment exception. You may have to pay an early distribution recapture tax if, before you reach age 591/2, the distribution method under the equal periodic payment exception changes (for reasons other than your death or disability). The tax applies if the method changes from the method requiring equal payments to a method that wouldn't have qualified for the exception to the tax. The recapture tax applies to the first tax year to which the change applies. The amount of tax is the amount that would have been imposed had the exception not applied, plus interest for the deferral period. You may have to pay the recapture tax if you don't receive the payments for at least 5 years under a method that qualifies for the exception. You may have to pay it even if you modify your method of distribution after you reach age 591/2. In that case, the tax applies only to payments distributed before you reach age 591/2. Report the recapture tax and interest on line 4 of Form 5329. Attach an explanation to the form. Don't write the explanation next to the line or enter any amount for the recapture on line 1 or 3 of the form. One-time switch. If you are receiving a series of substantially equal periodic payments, you can make a one-time switch to the required minimum distribution method at any time without incurring the additional tax. Once a change is made, you must follow the required minimum distribution method in all subsequent years. Higher education expenses. Even if you are under age 591/2, if you paid expenses for higher education during the year, part (or all) of any distribution may not be subject to the 10% additional tax. The part not subject to the tax is generally the amount that isn't more than the qualified higher education expenses (defined next) for the year for education furnished at an eligible educational institution (defined below). The education must be for you, your spouse, or the children or grandchildren of you or your spouse. When determining the amount of the distribution that isn't subject to the 10% additional tax, include qualified higher education expenses paid with any of the following funds. • Payment for services, such as wages. • A loan. • A gift. • An inheritance given to either the student or the individual making the withdrawal. • A withdrawal from personal savings (including savings from a qualified tuition program). Don't include expenses paid with any of the following funds. • Tax-free distributions from a Coverdell education savings account. • Tax-free part of scholarships and fellowships. • Pell grants. • Employer-provided educational assistance. Chapter 1 Traditional IRAs Page 25 • Veterans' educational assistance. • Any other tax-free payment (other than a gift or inheritance) received as educational assistance. Qualified higher education expenses. Qualified higher education expenses are tuition, fees, books, supplies, and equipment required for the enrollment or attendance of a student at an eligible educational institution. They also include expenses for special needs services incurred by or for special needs students in connection with their enrollment or attendance. In addition, if the individual is at least a half-time student, room and board are qualified higher education expenses. Eligible educational institution. This is any college, university, vocational school, or other postsecondary educational institution eligible to participate in the student aid programs administered by the U.S. Department of Education. It includes virtually all accredited, public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. The educational institution should be able to tell you if it is an eligible educational institution. For more information, see chapter 9 of Pub. 970. First home. Even if you are under age 591/2, you don't have to pay the 10% additional tax on up to $10,000 of distributions you receive to buy, build, or rebuild a first home. To qualify for treatment as a first-time homebuyer distribution, the distribution must meet all the following requirements. during the 2-year period ending on the date of acquisition of the home which the distribution is being used to buy, build, or rebuild. If you are married, your spouse must also meet this no-ownership requirement. Date of acquisition. The date of acquisition is the date that: • You enter into a binding contract to buy the main home for which the distribution is being used, or • The building or rebuilding of the main home for which the distribution is being used begins. If you received a distribution to buy, build, or re- TIP build a first home and the purchase or construc- tion was canceled or delayed, you could generally contribute the amount of the distribution to an IRA within 120 days of the distribution and not pay income tax or the 10% additional tax on early distributions. This contribution is treated as a rollover contribution to the IRA. Qualified reservist distributions. A qualified reservist distribution isn't subject to the additional tax on early distributions. Definition. A distribution you receive is a qualified reservist distribution if the following requirements are met. • You were ordered or called to active duty after September 11, 2001. • You were ordered or called to active duty for a period of more than 179 days or for an indefinite period because you are a member of a reserve component. 1. It must be used to pay qualified acquisition costs (defined next) before the close of the 120th day after the day you received it. • The distribution is from an IRA or from amounts attrib- 2. It must be used to pay qualified acquisition costs for the main home of a first-time homebuyer (defined below) who is any of the following. • The distribution was made no earlier than the date of a. Yourself. b. Your spouse. c. Your or your spouse's child. d. Your or your spouse's grandchild. e. Your or your spouse's parent or other ancestor. 3. When added to all your prior qualified first-time homebuyer distributions, if any, total qualifying distributions can't be more than $10,000. If both you and your spouse are first-time home- TIP buyers (defined later), each of you can receive distributions up to $10,000 for a first home without having to pay the 10% additional tax. Qualified acquisition costs. Qualified acquisition costs include the following items. • Costs of buying, building, or rebuilding a home. • Any usual or reasonable settlement, financing, or other closing costs. First-time homebuyer. Generally, you are a first-time homebuyer if you had no present interest in a main home Page 26 Chapter 1 Traditional IRAs utable to elective deferrals under a section 401(k) or 403(b) plan or a similar arrangement. the order or call to active duty and no later than the close of the active duty period. Reserve component. The term “reserve component” means the: • Army National Guard of the United States, • Army Reserve, • Naval Reserve, • Marine Corps Reserve, • Air National Guard of the United States, • Air Force Reserve, • Coast Guard Reserve, or • Reserve Corps of the Public Health Service. Qualified birth or adoption distribution. A qualified birth or adoption distribution is any distribution from an applicable eligible retirement plan if made during the 1-year period beginning on the date on which your child was born or the date on which the legal adoption of your child was finalized. A qualified birth or adoption distribution must not exceed $5,000 per adoption or birth. In addition, an eligible adoptee is any individual (other than the child of the taxpayer’s spouse) who has not reached age 18 or is physically or mentally incapable of self-support. Amount may be repaid. If you receive a qualified birth or adoption distribution, you can make one or more contributions to an eligible retirement plan if you are a beneficiary of that plan, the plan accepts rollover contributions, and the total of those contributions does not exceed the amount of the qualified birth or adoption [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3A1df69e81e75c2d07. Public record. Not legal advice.