Involuntary TSP distribution in 2020
TSP completed a 2019 requested rollover to IRA in early January 2020. However, effective January 1, 2020 the RMD age changed from 691/2 to 72. Since TSP’s systems had not caught up with the change they made a distribution before rolling over the rest. TSP refused to correct the situation. The actual distribution check was deposited to the IRA account along with a separate check for the withheld tax. Has IRA issued any guidance how to handle this involuntary distribution for 2020 returns? If not how to properly handle the situation?
Permalink Submitted by Alan - IRA critic on Thu, 2021-01-28 16:35
Any forced distribution from a plan that is more restrictive than the IRS RMD rules is a “plan RMD”, not a statutory RMD. Therefore, the difference between the plan RMD and the IRS RMD per Sec 401(a)(9) is eligible for rollover if the distribution would otherwise be rollover eligible. For example, such a distribution for a non spouse beneficiary would not be rollover eligible in any circumstances.
IRS Notice 2020-51 provided exceptions to several normal rules to allow amounts that would have been 2020 RMDs if not waived to be rolled over by 8/31/2020. However, in your case this appears to have been done right away which would have been allowed even without the Notice. The TSP should be issuing a 1099R coded 7 for the distribution and another 1099R for the direct rollover, coded G. The 7 coded 1099R can simply be reported as a rollover on lines 5a and 5b of Form 1040, resulting in 0 taxable income on 5b.
Permalink Submitted by S Roy on Thu, 2021-01-28 16:51
Perfect! Thanks and thanks again. The TSP 1099Rs are coded exactly as you stated. Phew! Major headache avoided.