Recharacterizing 2020 withdrawals in 2021

I had Etrade Securities take a MRD from my traditional IRA (March 2020) before I learned that the CARES Act made MRD’s optional in 2020 due to the pandemic. The MRD taken out was $16,733. I learned a month or two later that MRD’s were not required for 2020. I called Etrade and explained what happened and they said I could reverse the MRD – I think it is called IRA re-characterization. In the $16,733 MRD taken from my IRA, I had $3,500 deducted for federal taxes. I also had $3000 transferred by Etrade to a charitable organization (QCD) before the MRD was processed in March. So, $10,233 was re- characterized back to my IRA account in May, but as it turned out, that might not have been enough to not pay any income tax on my IRA withdrawals. The $3,500 federal withholding was not re-characterized, nor the $3000 QCD (which I didn’t want to put back in my IRA). OK, now I am doing my taxes using H&R Block tax software. I received a 1099-R with the $16,733 shown in box 1 & 2a as a withdrawal on the form – no problem. Now the question I have. In box 4 of the 1099-R page of the H&R Block software I entered the $3500 federal tax withheld from the withdrawal. In IRA Distributions section of the1099-R H&R Block software, I entered $10,233 in section D 1. b of the IRA Distribution section of the 1099-R. I the F 2. section of the H&R Block software1099 – R, I entered the $3000 QCD. The problem I have is $3500 ends up in the IRA distributions line 4b for my 1040 form. I now think the federal tax ($3500) withheld should have been added back to my IRA at E trade along with the $10,233 Etrade that is already added back. The $3500 amount is the federal tax withheld, like I mentioned above. The question is, can 2020 IRA withdrawals (like the $3500) be done in 2021 (like now).
Thanks for any help.
Rusty Nelson



What you did was a rollover, not a recharacterization. You could have rolled back the 3500 withheld using your other funds, but since you didn’t, the 3500 will be taxable on line 4b. It is too late to roll the 3500 back, and it will be taxable. Your return should have both “rollover” and “QCD” entered on the line next to 4b, but there might not be room for both, and in that case there should be a separate statment showing the breakdown between the amount rolled over and the QCD.
Since the 3500 was added to your withholding account, but 3500 is the only taxable portion of the distribution, that would suggest a larger refund (or less owed) with your 2020 return. That nets out to more left in your taxable funds, 3500 less in your IRA, and slightly reduced future RMDs due to the reduction of the IRA balance by that 3500 that could have been rolled back, but wasn’t. 
Since the 3500 taxable amount on 4b is correct, that indicates that your data entry into the tax program was likely correct.

There was no way for Etrade to roll over the $3,500 on their own because that money had already been sent to the Treasury as tax withholding for your benefit.  The deadline for rolling over that $3,500 was August 31, 2020 so there is no option to roll over that $3,500 now.  To have been able to complete the rollover of this $3,500 by August 31, 2020 you would had to have substituted $3,500 from another source.

That is not what I had hoped.  I appreciate the responses from both of you.Rusty Nelson

Add new comment

Log in or register to post comments