Returning RMD taken in 2020 per IRS notice 2020-51

Submitted by Mark Gill on Fri, 2020-07-10 17:16

#1 Calling it an indirect rollover, my IRA provider said I could return the net or gross amount of my 2020 RMD which I took in Jan 2020. The difference between net and gross is the state and federal taxes I had withheld. If I return the net amount and not the gross, I assume the difference between the two would be considered a distribution for tax purposes. Is that correct?

#2 My wife also took her RMD this year with another IRA provider. If she returns her RMD, and I do too, would that be considered two rollovers in the same tax year?

Thanks



Submitted by David Mertz on Fri, 2020-07-10 18:00

  1. Correct.  To repay the entire gross amount of the distribution by the August 31, 2020 deadline in IRS Notice 2020-51, other funds would need to be substituted.  The tax withholding will be credited on your 2020 tax return.
  2. The one-rollover-per-12-months limitation is per individual, not per couple filing jointly.  Regardless, a repayment pursuant to Notice 2020-51 of a 2020 IRA RMD to the account from which it came is disregarded with respect to this limitation, so an individual who took RMDs from several different IRA can repay them all to the distributing accounts without violating this limitation.

Submitted by Alan - IRA critic on Fri, 2020-07-10 18:22

Note: DMx meant to type August 31, 2020 in response to Q 1.

Submitted by David Mertz on Fri, 2020-07-10 18:52

Thanks, I’ve correct that.

Submitted by Alice Zab on Fri, 2020-07-10 20:51

I have a Solo 401K from which 2020 RMD was taken in February 2020. Previous years, 1099R/1096 paper form (with carbon copies) is ordered from IRS https://www.irs.gov/businesses/online-ordering-for-information-returns-and-employer-returns to report the yyyy RMD.  The original page of the 1099R/1096 is mailed  coming January.  Usually, the accountant calculates the 401K RMD 1099R Fed W/H (not taken when RMD was taken) and adds it into the quarterly Estimated taxes.This year, IRS Notice 2020-51 suspended the 2020 RMD requirement, allowing rollback into 401K by August 31, 2020 to accommodate taxpayers who have taken the RMD early and missed the 60 day period.Question:   When I rollback the  2020 401K RMD, what IRS forms are required?(a)    Does the February 2020 RMD need to be reported in 2020 1099R/1096 anyway?(b)   Additionally, do I need to file IRS paper form 5498 (due August 31, 2020) to indicate the RMD solo 401K rollback?  I read that the form 5498 is for IRA’s only. If so, what IRS form is required to report to IRS the solo 401K RMD rollback?(c)    The IRS is not processing any paper form orders during the pandemic, so all paper forms required may not be delivered to meet reporting deadlines … How to handle this situation? Please advise.  Thanks in advance

Submitted by Alice Zab on Fri, 2020-07-10 20:51

I have a Solo 401K from which 2020 RMD was taken in February 2020. Previous years, 1099R/1096 paper form (with carbon copies) is ordered from IRS https://www.irs.gov/businesses/online-ordering-for-information-returns-and-employer-returns to report the yyyy RMD.  The original page of the 1099R/1096 is mailed  coming January.  Usually, the accountant calculates the 401K RMD 1099R Fed W/H (not taken when RMD was taken) and adds it into the quarterly Estimated taxes.This year, IRS Notice 2020-51 suspended the 2020 RMD requirement, allowing rollback into 401K by August 31, 2020 to accommodate taxpayers who have taken the RMD early and missed the 60 day period.Question:   When I rollback the  2020 401K RMD, what IRS forms are required?(a)    Does the February 2020 RMD need to be reported in 2020 1099R/1096 anyway?(b)   Additionally, do I need to file IRS paper form 5498 (due August 31, 2020) to indicate the RMD solo 401K rollback?  I read that the form 5498 is for IRA’s only. If so, what IRS form is required to report to IRS the solo 401K RMD rollback?(c)    The IRS is not processing any paper form orders during the pandemic, so all paper forms required may not be delivered to meet reporting deadlines … How to handle this situation? Please advise.  Thanks in advance

Submitted by Alan - IRA critic on Fri, 2020-07-10 22:50

  • The 2020 Distribution needs to be reported on a 1099R even if it is rolled back. The rollover is reported on Form 1040 next to line 4d and 4d itself will show 0.
  • Form 5498 does not apply to rollover contributions made to 401k plans. This is an IRA form. Since the IRS receives no form from the plan, you could include an explanatory statement indicating the distribution was rolled back per Notice 2020-51, but this is not required.
  • Perhaps the IRS will provide paper form closer to the 2020 filing season, or will specify an alternate was to report. I am not sure there is no an alternate way to report now.

Submitted by Alice Zab on Tue, 2020-07-14 15:44

Thank you, Alan.  Why does the RMD need to be reported on the 1099r since RMD will be rolled back (returned) as allowed by the Cares Act?  Does the rollback also required 1099r? (1) Full RMD 1099r ($0 w/h taxes paid):  What boxes must be filled?(2) Full RMD ‘rollback’ 1099r: What boxes must be filled?On the 1040, box 4d reports amount $0 because of the 1099r (1) and (2)?Again, thank you!

Submitted by Alan - IRA critic on Tue, 2020-07-14 16:51

  • All custodians must report distributions on a 1099R under IRS rules, and they also must report rollover contributions on  5498, but only for rollovers to IRAs. A 5498 is not issued by a qualified plan, therefore no form is issued to report a rollover contribution to these plans.  
  • For 401k distributions, the 1099R boxes that apply are Box 1, 2a, Box 4 for any withholding, and Box 7 to show proper distribution code. 
  • The distribution and rollover is reported on Form 1040, lines 4c and 4d, with 0 on 4d and “rollover” entered next to 4b. 

Submitted by Alice Zab on Wed, 2020-08-19 14:35

Thank you, Alan. Regarding you comment (bullet 2), what is the proper distribution code for Box 7?

Submitted by Alan - IRA critic on Wed, 2020-08-19 14:53

Code 7 in Box 7. But if the solo K distribution was from a designated Roth balance, then show Code B.

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