12/31/22 deposit of RMD checks written by account owner.

Submitted by David Hall on Tue, 2023-02-21 02:23

I wrote two large checks against my Fidelity Investments Conventional IRA that were deposited at two separate banks on 12/31/22. In the case of the one I personally deposited in my Citibank branch checking account, the deposit receipt stated that the funds were available immediately; I don’t know if the same was true of the other deposit. However, Fidelity declines to issue a 2022 1099-R for these RMD withdrawals because Fidelity didn’t post them to my account until 1/3/23 (even though the US bank electronic funds transfer system appears to be nearly instantaneous).

How can I document that the RMD’s deadline was satisfied, thereby avoiding the 50% IRS penalty? I plan to use TurboTax Deluxe to prepare and submit my 2022 IRS tax documents.



Submitted by Alan - IRA critic on Tue, 2023-02-21 02:47

  • When you have IRA checkwriting and write a check near year end, you have lost all control of the 1099R issue date. The IRS goes by the 1099R. While you do not have to worry about the penalty if you file a 5329 correctly (4 lines) and request the penalty waiver, the larger issue is what effect having two RMDs to report in 2023 will have on your marginal tax rate. You will save taxes for 2022 but you might have to pay more than you saved in 2023. If this is not a large concern, I would just request the penalty waiver and be done with this because FIdelity or any other custodian will not reallocate this distribution to 2022.  And even if you filed a substitute 1099R to report the distribution, you will just defer the problem to 2023 because Fidelity is going to report two years of distributions in 2023 and the IRS will expect them to be reported on your taxes. That would produce a double tax bill.
  • This same problem occurs with those with check writing for QCDs – checks do not get returned to the custodian until after year end because the charity delayed cashing the checks. My advice for anyone with check writing is to avoid writing them anytime in December, much less after Christmas. The hassle this will create is not worth it. At least the IRS routinely waives the penalty, and you can state that the late RMD has already been made up, which is required to file the waiver request.
  • Be sure to check the 5329 Inst carefully for lines 54 and 55 because proper completion is confusing. An incorrectly filed 5329 is the main cause for refusing a waiver request.

Submitted by David Hall on Wed, 2023-02-22 19:22

Thank you, Alan, for your response.  Is there no way to get the IRS to accept a bank statement showing the check deposit in my account on 12/31/22, and to accept the acknowledgement from a Qualified Charity of a donation having been received in 2022, absent a 2022 1099-R from Fidelity reflecting these withdrawals?  Regarding Line 54 of Form 5329, I understand the instructions for my case of having fully met the RMD, that I should put the sum of the checks written that are not reflected in a 1099-R to the left of its entry box followed by the letters RC in parentheses, and put $0.00 in its entry box.  Have correctly interpreted the instructions? 

Submitted by Alan - IRA critic on Wed, 2023-02-22 20:09

  • The IRS will probably not resist your reporting of additional distributions for 2022, but the much larger problem will be for 2023 when Fidelity issues 1099R forms for the amounts you already reported in 2022, and you will have to convince the IRS that your 2023 taxable income should be proportionately less. Further, you don’t have the documentation for the other check. It may not be worth the hassle if you cannot treat both checks the same.
  • Not following you reference to a charitable donation. These checks could not have been QCDs if you wrote them to yourself, even thought you had checkwriting authority that might have been used for QCDs.
  • Knowing that you can easily get the penalty waived for late 2022 RMDs, are you mostly concerned about the effects of this RMD income being deferred from 2022 to 2023?

Submitted by David Hall on Fri, 2023-02-24 21:15

     Yes, I am concerned about having to report some of 2022 distribution, as well as all 2023 RMD’s not given as a QCD, as 2023 income.   I have yet to estimate how painful that would be.  It could push the additional 2023 income into a higher tax bracket or trigger an AMT. [New Para.]:      It’s unclear to me how I would go about reporting the 2022 distributions that were not supported by 2022 1099-Rs if I decided to do that.  Would I just have to wait until the IRS sent me a CP2000 Notice that my data isn’t consistent with the 1099-Rs that they received, and that I need to provide an explanation?  Do you know of a way that IRS software processing a married-couple return can be alerted to have a human read an explanation (included with the return) for the inconsistency earlier than the normal review process that generates CP2000s?  (My experience is that CP2000 arrive many months after filing.)  Do you know if  I would  need to file by mail because TurboTax Deluxe doesn’t handle electronic transmission of an explanation? [New Para.]:       The second large check was to a QC.  I got an email acknowledgement that the check was deposited on 12/31/22, as I recall on the same day. 

Submitted by Alan - IRA critic on Fri, 2023-02-24 23:02

  • Form 4852 is a substitute 1099R. An IRS link is attached below. To use the form the custodian must have made an error, and if the IRS contacts FIdelity they will probably be convinced that Fidelity was not in error to use their bank’s clearing of an IRA owner check to trigger the 1099R. Therefore, the IRS may not even send you the 4852 for you to complete. Check the instructions for the form here to determine the 4852 requirements. Then note that you will face the same issue next year when the actual 1099R forms include the amount that you wanted distributed in 2022.
  • Form 4852 (Rev. September 2020) (irs.gov)
  • You may need to find a tax program that supports both a 4852 and an explanatory statement, or you will have to file a paper return for both 2022 and 2023. 
  • It is not possible to control when and if the IRS actually reads explanatory statements. Many people have the impression that they are often overlooked or ignored. IRS service has been very poor and they are just starting to recover from their staffing issues and huge backlogs.
  • To get a rough idea of how much it will cost you (or save you) to have the non QCD distributions reported in 2023 instead of 2022 you could determine your tax bill for 2022 with and without the non QCD distribution and that will determine your 2022 savings. Then enter the additional income you would have in 2023 with all the 1099R non QCD income you would have in 2023 that exceeds what you otherwise would have had if things had gone as you wished in 2022. That will tell you how much more you would pay in 2023. Finally, compare the extra tax bill in 2023 to what you will save in 2022. If the net is higher, how much more would you be willing to pay to avoid an 18 month hassle with the IRS that may have a low chance of success.

Add new comment

Log in or register to post comments