Second IRA Rollback 2020
First Rollback 2020 to same Traditional IRA for same amount $46K – Jan.13 out and Jan 29 returned( within 16 days.)
Second Rollback 2020 to same Traditional IRA for same amount $106 K – April 30 out and June 15 returned( within 45 days.)
Received 1099-R Box 2A Taxable amount says ” $152,010″( probably includes institutional wire fee $10.)
Told will receive 5498 by May 2020 – but too late since tax reporting due 4/15/2021 for tax 2020.
Questions:
1. Does Cares Act Exemption exempt my husband’s second rollover for $106 K in its total amount ?
What part is tax-exempt and what part is taxable? Understand that normally only one roll-back per year.
Read that Cares Act exemption says ” not limited to one rollover per year but has max of $100 K.”
Does that mean 6 K above $100 K ( second rollback was $106 K) is taxable or total amount $106 K is tax exempt?
2. How do we report the distribution in 1040-SR – ie Tax exempt and taxable parts – for Tax 2020 by 4/15/2020
since 5498 form will arrive late by May 2021. Do we have to incorporate the transaction history print-out?
Do we need some form to explain what is written on 1099-R as $152 K taxable amount
despite he fact that all the funds were all returned to same Traditional iRA within 16 days first time and 45 days second time.
Thank you very much for your help.
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2/4/21
Permalink Submitted by Alan - IRA critic on Thu, 2021-02-04 22:11
The 5498 issue date has never affected tax reporting. If an allowed rollover is completed, it should be reported as such on lines 4a and 4b of Form 1040. The IRS will match up the 5498 with the 1099R sometime down the road. Now we need to determine if these two rollovers were allowable.
You did not mention RMDs, so I assume these distributions were not RMD related. But you did mention a 100k limit and that applies to CRDs. It is true that the CARES Act provides for distributions taken anytime in 2020 to be treated as CRDs if the individual qualifies for a CRD, even later in the year. The qualifications are discussed in Notice 2020-50. Does he qualify?
If so, he can treat 100k of his distributions as CRDs, but the rest is subject to the one rollover limitation over 12 months. If he did not rollover any distribution made after 1/13/2019, then he would be allowed to treat the 46k distribution as the allowed rollover. 100k of the 106k distribution could be reported as a CRD on Form 8915 E along with the repayment, with the remaining 6k not eligible for CRD treatment or a rollover since the Jan distribution used up the one rollover. That 6000 is taxable, and the rollover is an excess contribution to the IRA which must be removed with allocated earnings no later than 10/15/2021 to avoid an excise tax. The 1099R should be reported with 152k on line 4a, and 6k on 4b with “rollover” next to 4b.
The handling of the 6k disallowed rollover is complex. Because it was not eligible for rollover it is taxable, but is not necessarily an excess contribution if husband qualifies for a regular TIRA contribution that he did not make. If he did make any 2020 TIRA or Roth regular contribution, please advise the amount, date, and if it was made to this IRA or a different one.
Permalink Submitted by David Mertz on Thu, 2021-02-04 22:33
If instead the $46k distribution can be treated as the CRD and the $106k distribution is treated as an ordinary rollover, there is no excess contribution.
Permalink Submitted by Alan - IRA critic on Thu, 2021-02-04 22:46
Yes, that combination would be much better if he qualifies for the CRD, and it avoids any taxable income and excess contribution. If reported this way, then he cannot roll over another distribution taken prior to May, 2021.
Permalink Submitted by Angelina Decastro on Fri, 2021-02-05 03:27
1. My husband’s 46 K and 106 K were rolled back to SAME IRA ( not a different IRA) – is that allowable ?2. Can our sudden huge stock losses due to Covid qualify for Corona Related Distribution ?3. What form is used to report the ordinary once per year rollover ?4. Besides my husband’s rollback , I also rolled back 67 K on my traditional IRA and $42 K on my SEP- IRA 2020 within 45 day period. Are both 67 K and 42 K within the limit of ordinary once per year rollback and thus tax exempt ? Is there a limit in the amount in the once per year rollback ? Are 67 K and 42 K added together as $109 K? What part is taxable and what part is tax exempt ? 5. Are my rollbacks added to my husband’s rollback per year? What is the rule or limit on once per year roll back distribution from IRA / SEP for married filing jointly ? Thank you very much for a very comprehensive professional answers to my questions. February 4,2021
Permalink Submitted by David Mertz on Fri, 2021-02-05 13:24
If these distributions would not have been RMDs were it not for the CARES Act, it doesn’t matter what IRA the rollover was made to.
Stock losses do not themselves make one an affected individual with respect to being qualified to receive a CRD. The definition of a qualified individual has been provided by the IRS in Notice 2020-50.
An ordinary rollover of an IRA distribution is simply reported on 2020 Form 1040 by including the gross amount of the distribution on line 4a, excluding it from line 4b and including the word ROLLOVER next to line 4b.
Your $67k rollover and $42k rollovers are separate rollovers.
Each individual is independent of any other individual with respect to the one-rollover-per-12-months limitation.
Filing status is irrelevant to the one-rollover-per-12-months limitation.
It sounds like none of these distributions qualifies as a CRD or as a repayment of an RMD per IRS Notice 2020-51. If that’s true, the second of each individual’s rollovers is a violation of the one-rollover-per-12-months limitation, are taxable and have resulted in excess contributions to each individual’s IRAs.
Permalink Submitted by Alan - IRA critic on Fri, 2021-02-05 14:47
Given the above costly scenario, suggest you carefully review IRS Notice 2020-50 to determine if a CRD could be applied to either of you. If it applies to one of you, it applies to both. You might be able to “back into” the CRD as a solution to these errors, but one of you must actually qualify. All distributions taken in 2020 through 12/30/2020 qualify if YOU qualify even though you were unaware of this at the time of the distributions.
The IRS is very tough on using IRA distributions for temporary loans, and about 5 years ago they tightened up the one rollover rule to put an end to serial IRA loans. If you want to move funds between custodians, use direct transfer not 60 day rollovers. Transfers are not reported or limited in number.