Question

Cares ACT RMD Reversal Snafu

Forum|Forum|5 years ago
January 25, 2021
2 replies
0 views

In Early March 2020 we did our normal RMD. In late March 2020 the Cares act became law. The act stated that there would be a 2020 RMD Holiday. What to do as we just took our 2020 RMD... Called our custodian and they said because of the act you can rollback your RMD, but you had to replenish the withheld taxes so as to restore the full amount. We did the the rollback... X dollars out X dollars back in.. a wash. Roll forward to 2021 and we received a 1099R showing that we took an RMD of X dollars along with that a form 5498 showing a rollover transaction for X dollars. On the 1099R box 2a shows X dollars taxable. Those X dollars show up on line 4b on the 1040 as a distribution even though I answered the follow on questions regarding rollover when entering the 1099R data. The only way I can make the 4b entry disappear is to override box 2a on the 1099 as a taxable amount zero. I'm thinkin' this might cause an issue with the IRS. This transaction seems like an indirect rollover where you take possession of IRA funds and put it back within 60 days. Is TT wrong by passing through the amount to line 1040 line 4b or did my custodian not handle the transaction correctly and my 1099R should have been coded differently i.e Box 7 . Or am I in an alternate universe were my "do over" is a taxable event?.

D

DataJunkie

Employee

I have a similar situation except besides taking my RMD and reversing it, I also withdrew an additional amount and rolled it over into a ROTH. On my 1099R, the Gross distribution (Box 1) and the Taxable amount (Box 2a) include the amount that I reversed. I called the broker and they said they would NOT revise the 1099R and that the amount that was reversed is shown on my 5498 as a Rollover contribution. TurboTax says you don't need to enter your form 5498 information and do not include this form.

D

DataJunkie

Employee

In looking at other posts, for your situation, it appears that you enter the information as it exists on the 1099R form, when you get to the section that asks "What did you do with the money ...", select "moved the money to another retirement account (or returned it to the same retirement account)".

In the next question you are asked to "Choose which of the following applies" to which you reply "rolled over all of the money to another traditional IRA or other retirement account (or returned it to the same account)". This appears to nullify the taxable income.

In my situation where I have both the reversal and a Roth conversion, TurboTax tells you to treat as separate transactions and create two 1099R forms and allocate the numbers so that the combined total of the two new 1099R's matches the original 1099R.

C

cidutsay12

It seems because of the Cares Act, Turbotax in its current status can't handle the case where a 1099-R form box A include both amounts that was converted to a Roth account and the RMD that was reverted back to the IRA account from which it was distributed in the first place. Either our brokerages issue two corrected 1099-R forms, or Turbotax finds to way to deal with the situation in its future updates.

macuser_22

Employee

This has nothing to do with the CARES act.

TurboTax has NEVER supported a singel 1099-R distributions to two destinations.

Situations not supported:

26.Form 1099-R --Distributions from Pensions, Annuities, Retirement orProfit-Sharing Plans, IRAs, Insurance Contracts, etc.: A single Form 1099-R rolled into multiple types of retirement plans (IRA, Roth IRA, other qualified retirement plan, etc.) is not supported. In this situation you must determine the amount rolled into each type of plan. Then treat each part of the rollover as a separate distribution and enter on multiple 1099-R worksheets.

You must split the 1099-R into two 1099-R's with the amounts going to each destination. The amount converted on one and the amount rolled over on the other so the totals equal the original.

Only the resulting 1040 form gets sent to the IRS, the 1099-R worksheets in TurboTax are just data entry screens and to not get sent to the IRS.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

MtnTABS

My 2020 traditional IRA 1099-R totals $125,000 in Boxes 1and 2a. It is ALL taxable. Can I split the 1099-R into two entries: $100,000 converted to a ROTH IRA and $25,000 as a regular distribution? The $25,000 does not show up on line 1040 4b as taxable no matter how many times I follow your step-by-step instructions. I made no nondeductible contributions, the IRA has no “ basis”, the $100,000 shows on Form 8606 Lines 16 and 18. I’ve never converted to a Roth until 2020; it is the only one I have. If I could make these into two separate entries I would think the $25,000 would finally land on 1040 Line 4b. It would also probably lower my $15,000 Federal tax refund! 🤣 (TurboTax Deluxe CD/Download Windows)