CARES Act RMD reversal – reporting on 1040
Hi, I have a client who took their RMD for 2020, automatically withheld Federal taxes, and transferred to their Brokerage account. Ultimately they decided to take advantage of the CARES provision and “reverse” this by “rolling over”/paying back the full amount of the distribution. This reversal was both within 60 days and before 8/31/2020.
They have now received their 1099-R for 2020 and want to know how to report this on their taxes as they usually have a relatively simple return and file themselves. It is my understanding that you report the distribution amount but then put a 0 for the taxable amount since it was rolled over. However, their specific question is how to report the portion that was automatically withheld for Federal taxes when they initially took the distribution?
Any insight would be appreciated. Thank you!
Permalink Submitted by Alan - IRA critic on Thu, 2021-01-21 20:00
The tax withholding shown on the 1099R will be reconciled when the return is filed. It is shown on Form 1040 as federal tax withheld. If the withholding was replaced with other funds to complete a rollover of the full gross distribution, this is reported like any other retirement plan rollover. If an IRA, the gross goes on line 4a, 0 on 4b and “rollover” entered next to 4b. That eliminates any taxable income.
If only the amount received was rolled back, the amount representing the withholding will be taxable income on line 4b.