Question

My former employer 401k accidently sent me two RMDs in late December and reported the two on my 1099R. Can I rollerover one of them to my current employer 401k?

Forum|Forum|4 years ago
February 6, 2022
3 replies
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Both RMDs were for the same amount, but the Fed/State taxes withheld differ. I'm noting on TurboTax that only one of them was for my RMD. If I do a rollover it will be for the gross amount, and hopefully I will get credited for the tax on my 2021 return.

TurboTax Self Employed Online

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Opus 17

Employee

Yes, but you must understand the terminology. An RMD is not a specific transaction. It is a dollar amount that you must withdraw during the year in order to avoid a penalty, based on your age and the size of the account. You can always withdraw more, but if you withdraw less, you will be subject to a penalty. People who don’t need to spend their retirement money usually take a distribution at the end of December to meet the rule, but it is just an amount that must be withdrawn at some point during the year.

The amount that you are required to withdraw is not allowable for rollover. But if you withdraw more than the required minimum, that additional amount is eligible for a rollover into another 401(k) or into an IRA (as long as it is within 60 days). This is an indirect rollover, and in order for it to work you have to contribute the entire gross amount as the rollover, not the net amount after taxes. You will get credit for all of the taxes, and if you owe less tax then was withheld, you’ll get a refund.

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TomD8

Employee

RMD's cannot be rolled over.

https://www.investopedia.com/articles/retirement/03/110503.asp

**Answers are correct to the best of my ability but do not constitute tax or legal advice.

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Opus 17

Employee

@TomD8

You might want to double check your answer. The customer took two withdrawals at the end of December, each of which was equal to their RMD. Therefore, the customer has withdrawn more than the required minimum.

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RaifH

Yes, this can be an indirect rollover if you put the money into your new 401(k) within 60 days of taking the second distribution as long as none of this distribution was an RMD, as @Opus17 noted. Typically, only one indirect rollover is allowed in a 365 day period. The IRS may grant some waivers in extreme cases to the 60-day rule. To enter the IRA distribution as a rollover, follow these steps:

Search for 1099-R and select the Jump to link in the search results.
Continue through the screens to import or enter your 1099-R form.
When asked Tell us if you moved the money through a rollover or conversion select I rolled over some or all of it to an IRA or other retirement account within the time limits (normally 60 days) and Continue.
On the next screen, Did you roll over all of this (Box 1) to another retirement account? answer Yes, I rolled over to an IRA or other retirement account (or returned it to the same account) and Continue. If you did not roll over the entire amount, select No and enter the amount you did deposit into your new 401(k).

As @Opus17 said, the entire Box 1 amount must be rolled over in order to avoid any taxes on the distribution. If your prior plan withheld some taxes, that amount would have to have also been deposited into the new 401(k). For example, if you took $30,000 out of your retirement account and they gave you $24,000 and withheld $6,000 for taxes, you would have to deposit $30,000 into the new 401(k) in order to answer Yes.

Since the distribution occurred in December, the taxes your plan administrator withheld will still count on your 2021 tax return.

Employee

Here, the taxpayer cannot rollover the entire amount because part of the amount that will be reported on the 1099R is required to satisfy the RMD.

There is a series of questions, and I can’t remember the exact order but I posted this about it with screenshots for another customer. Essentially, when you enter the 1099R, one of the things you will be asked for is “is this an RMD?” You will answer that part of it is an RMD, and the program will ask you to enter that part. Then there is another screen where you are asked “what did you do with the money?“ You must first select that you did a rollover or contributed it to another retirement account. That will pop up a new question for how much did you roll over, in which case you will indicate the amount of the rollover. You can’t rollover the part of the withdrawal that was an RMD.

For example, let’s suppose that your RMD amount for 2021 was $5000. It sounds like the plan custodian sent you $10,000, with different amounts withheld. The 1099R will only indicate the total amount withheld, so let’s assume that that was $3000, and you have a net of $7000 in your pocket. You can roll over any amount up to $5000, because you can’t dip into the amount that satisfies the RMD. If you were thinking that, since half the amount is the RMD I can roll over the other half, and you roll over $3500 as half of $7000, that would be treated as a rollover of $3500 only.

whatever amount you don’t roll over is taxed as ordinary income and you will get credit for all of the withholding on the 1099R.