Can I undo a Cares Act Reversal of an RMD for an Inherited IRA in 2021 Prior April 15?

Submitted by Andrew Zahn on Mon, 2021-02-22 12:41

I hope one of the Experts on this Forum can help me with this Issue:

– I took my 2020 RMD from my Inherited IRA in Jan 2020
– The Cares Act was modified or reinterpreted in June 2020 and allowed me to reverse my Jan 2020 RMD
– On August 25 I returned the Exact Positions that I had withdrawn from my inherited IRA (Cash and Stocks)
– TurboTax was finally “ready” late in February (delayed waiting for Final IRS rulings on Capital Gains, other items)
– I realized I should have not reversed the RMD from my inherited IRA or “replaced” the RMD with a traditional IRA distribution

Since we are now in 2021 is there a provision where I can “undo” the reversal of my RMD and have that income “count” as income in 2020. Probably the answer is “No”, but I would like to know for sure so I don’t needlessly take the time of a customer support person at my Brokerage firm.

Thanks so much for any help and advice you may have.

Andy Zahn



Submitted by Alan - IRA critic on Mon, 2021-02-22 14:53

You are correct. You can take a new distribution but it cannot be reported as a 2020 distribution. For 2021, RMDs resume as before.

Submitted by Andrew Zahn on Mon, 2021-02-22 15:50

Thank you.  Just to make sure I understand.Is this statement correct?  “There is no way to undo a reversal of an RMD from an Inherited IRA and claim that income in 2020.”    Or could I have undone the reversal, if I had executed it in 2020.  Just trying to learn the details.  I just prepare my own taxes, but I like to learn.It is interesting that my Broker does not sent out a Form 5498 until mid May.  I know they don’t have to send it until May 31, but they know I reversed my RMD in August 2020.    Now I have to explain to the IRS why their 1099R has been reversed.  If they could just get the 5498 out in early April I could file my taxes on time without having to explain why I wasn’t claiming RMD income.  That would be much better.  My Broker says they would have to write 100’s of lines of code to to do something that is once in a lifetime when it comes to an inherited IRA.  I replied that actually it is twice in 12 years!  I believe 5 lines of code would be needed since Inherited IRA’s are normally “closed” after the calendar year.  I was just looking to see if an exception was made for 2020-2021, so I could make an adjustment to a reversed 2020 RMD. Thanks!

Submitted by Alan - IRA critic on Mon, 2021-02-22 16:14

The 5498 issue schedule has been this way for decades. You would report your 2020 RMD distribution and permitted rollover just like any other rollover. The IRS never attempts to match 1099R, 5498, and tax returns until at least November of the following year since the recharacterization and excess contribution removal deadlines are 10/15. So you do not need any additional explanation with your tax return. Just report the 1099R as a rollover and there will be no taxable income on line 4b of Form 1040. Following is a copy of the portion of Notice 2020-51 describing  the rollover of would be 2020 RMDs.
“D. Permitted repayments of RMDs previously distributed from an IRA. In the case of an IRA owner or beneficiary who has already received a distribution of an amount that would have been an RMD in 2020 but for section 2203 of the CARES Act or section 114 of the SECURE Act, the recipient may repay the distribution to the distributing IRA, even if the repayment is made more than 60 days after the distribution, provided the repayment is made no later than August 31, 2020. The repayment will be treated as a rollover for purposes of § 408(d)(3) of the Code, but will not be treated as a rollover for purposes of the one rollover per 12-month period limitation in § 408(d)(3)(B) and the restriction on rollovers for nonspousal beneficiaries in § 408(d)(3)(C). ” 

Submitted by Andrew Zahn on Mon, 2021-02-22 17:29

Thank you.   On the second point the section …..” the recipient may repay the distribution to the distributing IRA, even if the repayment is made more than 60 days after the distribution, provided the repayment is made no later than August 31, 2020″ ….allowed me to repay the distribution more than 60 days after I took the distribution in January (I think January was originally not included in the Cares Act modifications which allowed Feb on distributions to be repaid).  After August 31 does everything revert back to the 60 Day time limit rules?  Say in December I decided that I wanted to UNDO my repayment.  Would Charles Schwab or Merrill Lynch have allowed me to UNDO my repayment and take the distribution as I originally planned?  And therefore force (allow) me to include claim the income in 2020.  December would be beyond the normal 60 Day timeline.  I realize 2021 is independent of 2020 and has is the same rules that were in place before 2020 with the exception of the 2008 crash year.Thanks again.  Thank you 

Submitted by David Mertz on Mon, 2021-02-22 18:30

There is no “undoing” a repayment.  However, there is no statutory restriction on taking distributions that are not RMDs (except perhaps from qualified annuities making periodic payments, but that is unlikely to be the case for an inherited IRA), so you could have just taken another distribution in 2020.  Your 2020 tax return would then report two distributions, one of which was rolled over.

Submitted by Andrew Zahn on Tue, 2021-02-23 16:18

Thanks so much.  I wish I had done that (taken another distribution) late in 2020, because my income was relatively low in 2020.  Appreciate your help and Alan’s help on my many questions.  I definitely have a better understanding thanks to both of you.  The experts like you and Alan on this forum are terrific!  Andy 

Add new comment

Log in or register to post comments