2019 RMD gone wrong
On December 27th, 2019 I requested Fidelity Investments sell several mutual funds in my IRA account to satisfy the 2019 RMD. I received a transaction confirmation showing the trade settlement on 12/30/19. As a result of this, I had filed my 2019 tax return reporting the amount as a RMD, assuming Fidelity made the distribution in 2019. One year later to my surprise, I receive a 2020 1099r from Fidelity for the same distribution. According to Fidelity, the check issued for the 2019 RMD was created on 1/2/2020 and must be reflected as a 2020 RMD. 1) Do I have any recourse on this matter? 2) What can I do now to remedy this unfortunate situation?
Permalink Submitted by David Mertz on Mon, 2021-02-01 22:48
You’ll need to file an amended 2019 tax return to remove any income originally reported that was attributable to this distribution (although I’m not sure that you would have reported this without having received a corresponding 2019 Form 1099-R), and, if 2019 was not the first year you were required to receive an RMD, also file 2019 Form 5329 Part IX requesting a waiver of the 50% excess accumulation penalty. If 2019 was your first RMD year such that your Required Beginning Date for RMDs was April 1, 2020, the distribution was not late and there is no need for Form 5329 Part IX.
See the instructions for Part IX of 2019 Form 5329 regarding how to file the form requesting waiver of this penalty: https://www.irs.gov/pub/irs-prior/i5329–2019.pdf
You’ll report this distribution on your 2020 tax return along with any other distributions that you received in 2020 (if any; RMDs for 2020, but not late taken 2019 RMDs, were waived by the CARES Act).
Permalink Submitted by Jeff Kosoy on Tue, 2021-02-02 16:16
2019 was not my first RMD year, in fact I went through the exact same process with Fidelity in 2018. They had correctly submitted a 2018 1099r for my 2018 RMD. Based on this, I assumed the 2019 settlement trade date (12/30/19) would reflect a 2019 1099r. Fidelity will not correct the 1099r from 2020 to 2019 because the check issued had a 1/2/20 date, they’re concerned with an IRS audit if they make this change. Are they correct in telling me this? I believe the selling of my IRA mutual investment in 2019 should generate a 2019 1099r not 2020?
Permalink Submitted by Alan - IRA critic on Tue, 2021-02-02 16:57
Fidelity is correct. Trades in an IRA are not reportable events, and a 1099R can only be issued for distributions made out of the IRA. All IRA custodians use these rules. In addition, the IRS will not accept reporting of distributions for a tax year different than the 1099R tax year, unless they unknowingly overlook it. I suggest that you complete all IRA RMD related events by mid December, because every year thousands of year end transactions do not get completed due to the holidays and year end trading demands, and Covid staffing problems added to this for 2020.
Unfortunately, this resulted in a late 2019 RMD, for which you can request a penalty waiver because the late RMD was made up in Jan, 2020. Actually, you are fortunate in one respect. In ordinary times, you would have been taxed on two RMDs in 2020 (the 2020 RMD plus the late 2019 RMD). But because 2020 RMDs were waived by the CARES Act, you did not need to take the second distribution in 2020.
Permalink Submitted by Jeff Kosoy on Wed, 2021-02-03 03:55
Thank you for cofirming trades in an IRA are not reportable events rule. I can now proceed in filing an amended 2019 tax return with form 5329 Part IX requesting a waiver of the 50% excess accumulation penality. I’m also including a letter I requested from Fidelity apologizing for not making the RMD in 2019. It’s unfortunate for now I must pay taxes in 2019 & 2020 for the same RMD taken once. I just hope when everything is properly reported and corrected, the IRS will refund, without penality the 2019 taxes I paid attributable to my incorrect reporting of RMD income.
Permalink Submitted by Alan - IRA critic on Wed, 2021-02-03 19:07
When you amend your 2019 return, you should remove the RMD that you reported without a 1099R. That will reduce your tax bill for 2019, so you should get a refund with interest. For 2020, you did receive the 1099R, so will have to report that 1099R. The end result is that this 2019 RMD will be taxable in 2020 instead of 2019. There are no double taxes and the IRS will grant the late RMD penalty waiver. I see no reason that the IRS would not accept your amended 2019 return, although they are way behind and it may take them quite awhile to process the 1040X and pay the refund. On the 1040X I would NOT ask to have the refund applied to your 2020 tax liability unless you do not have the funds to pay your 2020 taxes. There is less chance of a foul up if you keep the two years separate even though you will probably have to pay your 2020 tax before you receive the refund for the 1040X.
Permalink Submitted by Jeff Kosoy on Fri, 2021-02-05 02:26
Thanks again, should I also attach a statement of explanation with Form 5329 showing how & why RMD was late? including a copy of check &1099r proving actual distribution was made in January 2020? Also, what do you recommend in telling the IRS why I’m claiming a refund on the 1040X, in Part III of the form? Should I attach addtional documents again?