Putting Back RMD
Client took RMD earlier in the year. The client took the distribution in the form of securities. My question is, he wanted to reverse that and put the assets back, to take advantage of the tax consequences …
I am being told that he may replace the distribution with any securities, as long as the value of those securities don’t exceed the original RMD valuation … Is this true ? Any securities ?
Your assistance is very much appreciated !!!
Thank you –
Gregg Guiol
Permalink Submitted by David Mertz on Mon, 2020-07-13 21:16
The rules regarding what is permitted to be put back into the account are the same as for any rollover. If the distribution was from an IRA, the exact same securities must be returned to the IRA; substitutions of other securities or cash is not permitted. If the distribution was from a qualified retirement plan, the cash proceeds from the sale of the securities can be substituted if the securities have been sold and the distributed securities or cash proceeds can be rolled over to any qualified retirement account that will accept the rollover.
Permalink Submitted by Alan - IRA critic on Mon, 2020-07-13 21:37
DMx – the tax code is somewhat ambiguous as to whether the intent allows the same type of property (securities) to be rolled back or the exact same property. 590 A narrows by specifing that the “same property” distributed must be rolled back. What if taxpayer sold the distributed shares, then repurchased the same # of shares intending to roll back? Are you aware of any other more specific IRS guidance on this? This custodian is apparently taking a broad view of what can be rolled back.
Permalink Submitted by David Mertz on Tue, 2020-07-14 02:40
I’m not aware of any specific guidance on this, but substituting shares seems problematic. My concern is that if one sold shares that had been distributed in-kind, repurchased them somewhat later and then rolled over the repurchased shares, one could potentially manufacture nonreportable income. For example distribute a share of XYZ valued at $100 and immediately sell it for $100. The taxable amount of the sale is $0 due to the share having a cost basis of $100. The share price then drops to $75 and the share is repurchased (or some other share with only $75 of cost basis is substituted), and then this share is rolled back into the IRA, resulting in the distribution and rollover being nontaxable. Perhaps this series of transactions could be legitimized by claiming only $75 of cost basis on the sold share so that $25 ends up being taxable, essentially exchanging the cost basis between the shares, but I’m not sure that that would be legitimate. Where would anyone find the guidance to know to do that? The share distributed from the IRA would be a noncovered share while the repurchased share would be a covered share. Would the brokerage firm even permit the rollover of a covered share?
Permalink Submitted by Alan - IRA critic on Tue, 2020-07-14 03:01
Could well be that brokerages lack a uniform policy on this, as illustrated by the OPs broker. Good point about the reporting variables of a sale. This could become an issue for those who take CRDs in kind and intend to repay in up to 3 years, as many will not know not to sell the distributed shares or could forget over a long 3 year time period. At least the number of in kind distributions is probably quite low.