60 Day Rollover on RMD
I have a client that had their RMD automatically taken out in Dec 2020 as per their agreement with the custodian (this is not an account we custodian). They then realized it came out in Jan 2021 and wanted to put it back, so the custodian did so within the 60 day window.
I’m curious what tax forms they’ll need to get everything filed. Since I can’t see the account and the tax forms generated, I am trying to help them be on the lookout for what they need for when they file. My assumption is that they’ll get a 1099R for the distribution. Then what I’m curious on is if they will get a form for the deposit or not. In my head, I’d think they’d get a 5498, but seeing as how the contribution to correct it was in 2021, that may not come for a long time. Is there something else they’ll need to acquire or provide to get the correction correctly accounted for?
Andrew
Permalink Submitted by Alan - IRA critic on Thu, 2021-02-04 19:18
They are very fortunate that the custodian accepted this rollover because the first distribution in 2021 is treated as the 2021 RMD and an RMD cannot be rolled over. If the distribution had been made in 2020 it could have been rolled back within 60 days because there were no 2020 RMDs.
Since the custodian accepted the rollover there will be both a 1099R and a 5498 for 2021 and client still needs to complete the 2021 RMD. Client has also used up his one permitted rollover even though client technically was not allowed to roll this back because it is applied against the 2021 RMD. These rules are typically enforced by the custodians, so he should be OK as long as the IRS does not audit him for some other reason and discovers this.
Client will just report this as an ordinary rollover on Form 1040 and hope for the best. A high number of year end errors are apparently occurring due to distributions being requested later in Dec not being completed in 2020, but rather in 2021.
Permalink Submitted by Andrew Rogers on Thu, 2021-02-04 20:54
I’m a bit confused. You’d said “If the distribution had been made in 2020 it could have been rolled back within 60 days because there were no 2020 RMDs.”. It was made in December 2020, so they did roll it back within the 60 days. Maybe I called the contribution the wrong thing. They used the 60 days to put it back in.
Permalink Submitted by Alan - IRA critic on Thu, 2021-02-04 22:27
You indicated that “they realized it came out in January”, so I thought that the actual distribution was not made on time. If the distribution was made in Dec then they should have the 1099R by now, and can simply report a rollover as long as they have not used up their one permitted rollover in the prior 12 months. The fact that the rollover is done in the following year does not matter as long as it is done within 60 days. The IRS is used to delayed 5498 forms by another year in that case.
Permalink Submitted by David Mertz on Thu, 2021-02-04 22:29
You said, “They then realized it came out in Jan 2021,” which suggested that the distribution was made in 2021 even though it was supposed to be made in 2020. If it was actually made in 2020, no problem as long as the rollover was completed within 60 days. Perhaps you meant to say, “In Jan 2021 they then realized that the distribution was made in December 2020.”
Permalink Submitted by Andrew Rogers on Thu, 2021-02-04 23:19
Yes, sorry! Poor wording. It was made in Dec 2020 but they didn’t see it until Jan 2021 when they got a statement. In that case, their 5498 wouldn’t come until early 2022, correct? In that case, would the 1099R that they’ll get just be left off the taxes?
Permalink Submitted by David Mertz on Thu, 2021-02-04 23:58
The Form 5498 showing this rollover will be the 2021 Form 5498 provided in early- to mid-2022.
The 2020 Form 1099-R reporting this distribution must be included on the 2020 tax return and reported as rolled over to exclude this from the amount on 2020 Form 1040 line 4b for an IRA distribution or 5b for a distribution from a qualified retirement plan.