CARES Act - returning RMD

[UncleSamPayer]

I took my RMD from an INH-IRA in January of 2020.  The CARES Act then came out in response to COVID allowing me to return these funds.  I was concerned as to how the taxes already paid on this amount would be recaptured.  My tax attorney said that my broker would issue a 1099-R that would show that no income was taken out but would indicate what taxes were withheld.  However, I just received my 1099-R from my brokerage account today, and it is showing my gross distribution as well.  They said that they will issue a 5498 after the tax season to show the money was put back in.  How do I indicate what I have done in TurboTax?

1) This gross distribution shouldn't show up as income for the year 2020.

2) I'm not sure what the 5498 is going to do since I am not (under normal circumstances) allowed to contribute to an INH IRA.

Thanks for any advice.

[dmertz · Accepted solution]

Your tax attorney is entirely incorrect about what would be reported on the Form 1099-R.  Forms 1099-R report only what was distributed from the account and reflect nothing about what was put back.  The fact that some or all of the distribution was put back will be reflected on your tax return, not on the Form 1099-R.  As you found, the Form 1099-R is required to have the entire gross amount in boxes 1 and 2a, box 2b Taxable amount not determined marked, the federal tax withholding in box 4, code 7 in box 7, the IRA/SEP/SIMPLE box marked and any state tax withholding in box 14.

The Form 5498 will show a rollover contribution, not a regular contribution, of the amount that you repaid to the IRA.

Since RMDs were waived for 2020, no part of the distribution was actually an RMD even though it was taken with the intention of satisfying an RMD.  In TurboTax, indicate that the distribution was not an RMD.  Indicate that you moved the money to another retirement account (or returned it to the same account), then indicate how much of the distribution you returned to the IRA.  TurboTax will include the entire gross amount on Form 1040 line 4a but exclude the amount rolled over from the amount on line 4b.  TurboTax will also include the word ROLLOVER next to the line.

If you did not substitute other funds for the amount withheld for taxes so as to complete the rollover of the entire gross amount of the distribution, the amount of the withholding remains distributed, not rolled over, and subject to tax; it's too late to complete a rollover of that portion of the distribution.  If the overall tax liability determined on your tax return is less than your total withholding, including the amount withheld from the IRA distribution, you'll get a tax refund.

[chantalita210]

Thank you so much for this information dmertz. I am in the same situation. So helpful! 

[jdmaertz13]

I took an RMD in January of 2020 and after passage of the Cares Act, I returned the RMD.   I received a 1099-R showing the entire amount along with the taxes that were paid (ie: I took $4,000 of which $3,320 was the RMD and an additional $680 to cover the taxes).  Form 5498 shows it as a Rollover Contribution.  

As I go through the step by step instructions in Turbo Tax, it reads:  Your IRA Contribution Isn't Permitted and is considered an excess contribution.   The reply below indicates you can indicate that the distribution was not an RMD.   

However, where in TurboTax following the step by step instructions can you indicate that the distribution was not an RMD? 

[DanaB27]

Please do not enter the returned amount as a contribution under the Deduction and Credit section. Please delete these entries:

1. Login to your TurboTax Account 
2. Click "Federal" from the left side of your screen
3. Click on “Deduction and Credits” tab on top
4. Click "edit" next to "Traditional and Roth IRA Contributions"
5. Remove the checkmark next to "Traditional IRA"
6. Select "yes" to "Remove Traditional IRA Contributions?"

Please follow these steps to enter your 1099-R and the return of RMD:

1. Login to your TurboTax Account 
2. Click on the Search box on the top and type “1099-R”
3. Click on “Jump to 1099-R”
4. Continue until "How much was a RMD?" and select "none"
5. Continue "Tell us if you moved the money through a rollover or conversion" and select "I rolled over some or all of it to an IRA or other retirement account within the time limits (normally 60 days)"
6. Continue answering the questions.

 RMDs were waived for 2020 and you must indicate to TurboTax that none of the distribution was RMD. If you already enter the 1099-R as RMD then you must delete and reenter the 1099-R form. Only editing the 1099-R form and changing your answer to the RMD question will not work.

[emt1946]

This is the most clear explanation I have heard on the subject. Even after trying to rationalize how to handle with 4 TurboTax rep's.  

Following the suggested steps I was finally able to get the correct result. 

Thanks so much for your detailed and excellent message.

[azaheer1]

These steps seem to be for the online version of Turbo tax 2020. I am using the download version ( Turbo Tax Premier) installed on my computer . I could not find the question " How much was a RMD?" nor any of the following steps mentioned in he instructions posted.

Could you post the steps for the download version of TurboTax Premier, Please?

[JaycoAirStream1]

Thanks for the solution as it was not intuitive as to what to do.  I have the same situation.

[DanaB27]

Please follow these steps to enter your 1099-R and RMD rollover in TurboTax Desktop:

1. Open you return in TurboTax 
2. Click on the Search magnifying glass on the right top and type “1099-R” in the box
3. Click on “Jump to 1099-R”
4. Continue until "About this Retirement Account. / Was this withdrawal an RMD for 2020?" and select "No, none"
5. Continue "What did you do with this money from this payer?" and select "I moved the money to another retirement account (or returned it to the same account" the select what applies to you.
6. Continue answering the questions.

RMDs were waived for 2020 and you must indicate to TurboTax that none of the distribution was RMD. If you already enter the 1099-R as RMD and changing your answer to the RMD question doesn't work then you have to delete and renter the 1099-R form. 

You can verify your entry by switching to Form mode (click on Forms at the top right). Look at your Form 1040 line 4 or 5.

@azaheer1

[JaycoAirStream1]

Okay, I have followed the instructions regarding the above subject, and have the federal return correct.  However, when e-filing the NY State return, I am getting an error because the amount of state tax withheld (which I am trying to recover), exceeds the amount in the state distribution box or gross distribution.  I entered the information exactly as stated on the 1099-R, which had 612.00 state income tax withheld, and no amount in the state distribution box.  How do I fix this to be able to continue to file electronically?

[macuser_22]

Box 14 is not usually required because it has been an 1099-R industrial standard for many years that if there is only one state in box 12 & 13 then the box 1 amount does not need to be allocated between two states - the entire box 1 amount is understood to be the state distribution so box 14 is just left blank.

But recently, there are at least two states (one being NY) that will reject 1099-R's with a state tax and a blank box 14 so it is okay to enter the box 1 amount into box 14 to satisfy the states requirement.

[ShelleyD]

Thank you! I only wish I would have read that last line beyond the numbered lists first.

[sammybob]

Thank you so much.  I kept editing and it wouldnt work.  The key to your answer was to DELETE and start over, and it worked perfectly.  I was going crazy.  So many thanks to you

[bobscheifele]

I followed your advice, and similar suggestions from others to the letter and it does not work.  The amount reported on the 1099R continues to remain in 4b.

I deleted the 1099R and started over again following the directions.  My RMD for 2020 continues to show up on line 9 (total income) in spite of several attempts.

On my latest attempt line 4a remains blank, but 4b has the amount originally distributed and rolled over.

One suggestion in a newspaper article was to complete 4b with the 1099R amount, leave 4b blank and write in "Rollover".  This is what you say Turbo Tax will do, but has not done so on my return.

Any suggestions?

Thanks

[macuser_22]

You must first delete the 1099-R and re-enter it.   Answer none of this was a RMD.

If not deleted it will remember the prior answer.