Does 5498 indicate each rollover type if two rollovers in 2020 ( follow-up questions) ?
Deeply appreciate your explanation & advice to our recent questions. Follow-up questions:
> Told to wait for our 5498 by May 2021 for rollovers stated in 1099-R received. This is the first time for us to rollover.
1. Should I call the Custodian now before 5498 is sent out in May to specify that
the traditional IRA is the ordinary rollover and the SEP-IRA is the CRD rollover for 2020 ?
If the Custodian designates incorrectly which of the two rollovers is ordinary rollover,
can I ask the custodian to revise it?
Which lines on 5498 will show the ordinary rollover and which lines for the CRD ?
Do I get a separate 5498 for traditional and SEP-IRA rollovers in 2020 ?
Will my husband’s 5498 reflect two different rollovers in 2020 since they are coming from same traditional IRA ?
Or do we need to call Custodian before May to specify the rollover type?
Should we request for tax reporting extension to wait for the 5498 in May 2021?
What documents do we need before we get appointment with your recommended tax advisor ?
2. Our many-year senior tax preparer was asking why our custodian sent us the 1099-R
though our first two rollovers were completely repaid in 45 days in 2020
and if we were to take distribution in future could mean double tax to us ?
Read in Google about form 8606 to avoid paying double tax on distribution that were already repaid in time.
Please explain what is 8606 and do we need to send this form 8606 too.
3. In your last response, you stated that ” if it were not RMD’s and were it not for the CARES ACT, it does not matter
whether or not the rollback was to the same IRA.” Does that mean ordinary once a year rollover should be returned
to the same IRA or SEP-IRA but CARES ACT allows rollback now to other IRA’s or SEP-IRA ?
4. Should lines 4a IRA distribution and 4b Taxable – each be itemized for me and my husband for each person’s IRA
or SEP-IRA as married filing jointly ?
5. Are CRD’s taxable even though they were repaid within 60 day window in the same year ?
If taxable, can one distribute the gross taxable CRD distribution for the CRD into 3 years ?
Or only the tax on the total CRD distribution can be divided into 3 years ?
February 7, 2021
Permalink Submitted by Alan - IRA critic on Sun, 2021-02-07 19:00
A custodian will not change an issued 5498 except in some cases where they are entirely responsible for an error. A CRD repayment should have been communicated to the custodian of the IRA receiving the repayment so that the 5498 would report it as a CRD repayment in Boxes 14a and b. If it is instead shown as a rollover in Box 2, it might trigger an IRS inquiry, but your 8915 E showing amounts repaid should and an explanation should satisfy the IRS. If the custodian knows they did not follow your instructions, they might revise the 5498, but I would not count on it. No harm in asking though. Box 2 for ordinary rollover, Boxes 14a and b (code of DD) for the CRD repayment. You will get a separate 5498 for each IRA account that receives a contribution, rollover or otherwise. For each IRA account that receives more than one rollover, the amounts are combined on a single 5498. But if there is more than one type (eg ordinary rollover and CRD repayment), there would be a 5498 for each one to segregate the amounts. Most all tax returns are filed without concern for the 5498, but it should be checked when received to be sure it conforms with your action. Regarding the CRD repayment, when it is made is when the custodian codes it for the tax Dept to reflect on the 5498, and it may not be possible to change it after that date. With CRDs being new, I expect there will be thousands of Box 14 omissions, but good chance the IRS will overlook it, and use the 8915 E and 1099R forms to match things up.
This question from your preparer is concerning, because ALL distributions made from an IRA must be reported on a 1099R. Taxpayer reports a rollover on Form 1040 line 4b which eliminates the taxable income. Each individual can only rollover one distribution in a 12 month period, but CRDs are exempt from this rule. If someone takes more than one distribution (not a CRD) in the 12 months, the custodian is not supposed to accept the second one back since it is not eligible for rollover and would be taxable. Form 8606 does not affect this. It is used if you made non deductible contributions to an IRA, took a distribution from an IRA with non deductible contributions, did a conversion, or did a Roth IRA distribution. So if the rollover was a Roth conversion, an 8606 would be needed to report it. Each spouse should know if they have IRA basis from non deductible contributions as each distribution would then have to be reported with an 8606 to determine the taxable amount on 4b.
Ordinarily a rollover can be made to any eligible account. However, the Special Cares Act provisions for 2020 only requires that a 2020 would be RMD from an IRA must be returned to the same IRA account. Cares also introduced CRDs, and CRDs can be repaid to any eligible account, does not have to be the account that made the CRD distribution. Both of these special situations apply to 2020 distributions only. A SEP IRA is merely a traditional IRA, but with special contributions rules. For purposes of rollovers in and out of a SEP IRA, consider it the same as a TIRA.
While your IRAs are separate for each spouse, on a joint return the line 4a and 4b amounts are combined for both spouses. No breakdown is needed.
Any distribution reported as a CRD (of course taxpayer must be eligible for a CRD), can be repaid up to 3 years after the date of distribution. The portion repaid will not be taxable, but if the repayment is done after the 2020 return is filed, the repayment credit will be applied to the repayment year first, but for example the entire CRD is repaid in year 2, the year one return will have to be amended for a refund. On the 2020 8915 E you must make a decision to report the CRD income all in 2020, or 1/3 each 2020-2022. 3 years of 8915 forms are needed if either the CRD distribution or repayments extend beyond year 1, and this complicates things considerably. It’s too involved to completely explain here. Again, any portion of a CRD that is repaid by the 3 year deadline will not be taxable in the end. Finally, if the CRD income is reported over 3 years, 1/3 the distribution is taxable income in each of those years. That means that unrepaid CRD distributions will generate taxable income in those years and could be taxed at different rates. Therefore, it is the taxable income that carries forward, not the tax itself.
NOTE: You might need a more experienced tax preparer for 2020 only, since the current preparer seems to think that a 1099R should not have been issued if you had already done a rollover. That is a very basis error, but of course, there might have been a misunderstanding. Also, you have up to the extended due date to repay a CRD and to be able to report the repayment on your 2020 return. If you think that you might repay by 10/15/2021, you might file for an extension. I would not extend over the 5498, but having an extra 5 months to repay to reduce your 2020 tax bill might be worthwhlle.
Permalink Submitted by Angelina Decastro on Mon, 2021-02-08 06:12
CARES ACT was only enacted in March 27,2020 although Covid-19 cases started much earlier. Can we claim the distribution 1/13/2020 as a CRD although it is before March 27– on the basis of my reduced self-employment income as a private MD ? Thank you. February 8,2021
Permalink Submitted by Alan - IRA critic on Mon, 2021-02-08 14:24
Yes. If you qualify after March 27th, a distribution already taken back to 1/1 qualifies to be reported as a CRD. Last day for a CRD was 12/30/2020.