Hi Everyone,

In early 2010, my mother got mad at one of her IRA custodians and decided to “roll over” her IRA there to another custodian where she had already had another IRA (all were traditional IRAs). As I have worked through this mess I learned that the first distribution from the IRA is deemed the RMD, so she actually contributed her RMD back into an IRA at another custodian that year. We forgot to specifically take an RMD that year because she was terminally ill late in 2010 (luckily for us we forgot, since she had already actually taken one), and she passed away in February 2011. We did take an RMD for 2011 prior to her death. After I posted for help here and realized what we had actually done, just prior to her death I had her sign the bank’s form to request the refund of the excess contribution. The custodian was a complete pain and didn’t understand what had happened, but after much gnashing of teeth I got them to realize she had contributed her RMD to them, and they refunded it to me prior to the deadline (check payable to her, handled through her estate settlement).

For 2010 I received a 1099 from the custodian where she had closed the accounts for the full amount. I included that on her tax return, but instead of showing the entire amount as a rollover, I took the total amount, backed out her RMD and reported the difference as a rollover, thereby including her RMD in her taxable income even though we were still waiting for the custodian that received it to refund the amount to us. I did not estimate any earnings on it when completing her 2010 tax return. I had estimated the amount of the RMD when we requested the refund of the excess contribution from the bank, but knew the exact amount when completing the return. My estimate was only off by less than $100. An example/timeline, with some amounts filled in to hopefully clarify:

[list]
[*]February 2010 – Mom closed account at Custodian A with $28,000 in it. Takes it to custodian B and deposits it as a rollover.[/*]
[*]No other IRA activity takes place in 2010.[/*]
[*]Realize what has happened in early 2011 after posting for help here.[/*]
[*]Mom completes forms requesting refund of $7,400 (I guesstimated amount to get it done as she was near death) over contribution and signs prior to her death in Feb 2011.[/*]
[*]Mom takes 2011 RMD in January 2011 for correct amount.[/*]
[*]In April 2011, I complete her tax return and calculate her actual 2010 RMD as $7,302. [/*]
[*]Custodian A sends 1099 for 2010 showing $28,000 taxable withdrawal.[/*]
[*]I report $28,000 withdrawal on her return, and show $20,698 as roll over, thereby including $7,302 in her taxable income for 2010.[/*]
[*]In 2011, we receive check from custodian B for $7,698 for refund of $7,400 and earnings of $298.[/*]
[*]In early 2012 I received a 2011 1099-R for the $7,400 + $298 from custodian B showing gross distribution of $7,698 in box 1, and $298 taxable amount in box 2.[/*][/list]

In looking over what to do with the 1099-R I received for the $7,698, it sounds like entire amount is taxable in 2010 (I had thought the earnings in it would be taxable in 2011 since we didn’t receive them until then, so I never estimated anything to include in her 2010 taxable income).

So my questions, in no particular order:

1. Should I amend her 2010 return to true up the $7,302 to the actual $7,400 that was received?
2. Is the $298 taxable in 2010? If so, I’m thinking I WILL amend the return because now I need to pick up the $98 from #1 above, plus this $298.
3. If #2 is ‘no’, how should I report the $298 in 2011? My tax software is complaining about the 1099-R with the “P” in box 7.
4. Anything I haven’t thought of here?

Thanks,

Gary