Reporting indirect rollover straddling two calendar years
I have a client who took a distribution in late 2020 which he intends to roll back into the same IRA in early 2021 (within the 60 day window for indirect rollovers). While I know this is allowed, I am unsure of how to report (or how the client should report) the distribution and rollover back into the IRA. Since the transactions happened in two different tax years, how does he avoid taxation on the income from the distribution in 2020 if the corresponding 5498 for 2020 does not show a rollover contribution into the IRA?
Permalink Submitted by David Mertz on Wed, 2021-01-06 01:31
The rollover is reported on the 2020 tax return the same as it would be if the rollover of the 2020 distribution had been completed in 2020. Yes, the rollover will appear on the 2021 Form 5498 for this IRA instead of on a 2020 Form 5498, but that’s irrelevant to how it is to be reported on the 2020 tax return. The amount distributed will be included on Form 1040 line 4a but will be excluded from any amount on line 4b and the word ROLLOVER is to appear next to the line. The IRS is generally accustomed to seeing this sort of occurrence, but there’s always the possibility of an inexperienced IRS examiner questioning it, so it’s a good idea to maintain copied of IRA statements showing the actual distribution and rollover dates in case they IRS asks about it.