excess RMD

[george100]

In error I took an excess RMD (Required Minimum Distribution) from my rollover IRA. Within three days, the error was reported to Vanguard and they performed an “indirect rollover” in the proper amount which reportedly corrects the problem. Unfortunately, the Vanguard 1099-R reflects the original erroneous amount rather that the corrected amount. Vanguard advised that they will produce a Form 5498 in May. Due to the excessive RMD reported on my 1099-R, Turbotax Premier understandably reports an incorrect tax. I was able to generate an altered 1099-R with explanation and it appears to make things right. My question; Is the correct way to resolve the matter or is there another solution?

[LeonardS]

It is never a good practice to alter official tax forms to reach the result you are looking for.  The correct way is to wait and file your tax return after you receive the corrected 1099-R from Vanguard.  You may need to file an extension if you do not receive the corrected 1099-R from Vanguard by the due date, currently April 18, 2022.

If you need to file an extension follow these steps:

1. Open your return in TurboTax Online.
   (To do this, sign in to TurboTax and select Pick up where you left off).
2. Select File an extension at the bottom of the column on the left side of the screen.
   • If you don't see the File an extension button in Step 2 above, search for extend using your product's search function and select the Jump to link at the top of your search results.
3. Follow the on-screen instructions to e-file your extension.

IRS extensions for tax year 2021 must be filed on or before April 18, 2022 for domestic taxpayers.

It isn't possible to file a post-deadline extension.

Keep in mind: An extension doesn't give you extra time to pay your taxes — but it will keep you from getting a late filing penalty. (You'll still owe interest if you pay after the deadline).

This link How do I file an IRS extension (Form 4868) in TurboTax Online? has information you may find helpful.

[george100]

Thanks for your reply and I understand your suggestion.

I neglected to include the fact that the substituted 1099-R was generated using TurboTax Form 8812 which prepares the a new 1099-R with provision for explanation. This will at least allow me to get the return submitted and start the fight with the IRS later.

As I stated in my post, Vanguard has advised that they provide no 1099 that reflected the net RMD total (Excess RMD - Indirect Rollover = Net RMD). Apparently they do generate a Form 5498 in the May timeframe and it is not clear to me that all or some of this detail is forwarded to the IRS.

[Opus 17]

@george100 

You need to clarify the dates that this happened. If the withdrawal occurred in 2021 and the return occurred in 2022, you will get no revised 1099-R.  What happened in 2021 cannot be changed.

When you make any withdrawal from a qualified retirement account, you have 60 days to roll over the money into a different qualified retirement account or back into the same account.  It’s OK if this spans the December 31 end of a tax year, but you will not get a new 1099R.

you will deal with this in TurboTax, it is very simple. When you enter the 1099R, TurboTax will ask what you did with the money; some of the choices are that you rolled it over, spend it, or a combination. If you select a combination of things you will be allowed to indicate what part you rolled back into the account and what part you kept for yourself. You will only be taxed on what you actually kept.

It doesn’t matter if you don’t have form 5498 yet, the IRS will use this in the future to reconcile your tax returns and make sure everything lines up, but you don’t need it to file your tax return.

Don’t generate a fake or substitute 1099R, because this will very definitely result in an audit letter. Just report the rollover.

[fanfare]

It's a lot easier on your sanity to file correctly in the first place, than to "fight it out "with the IRS later.

[george100]

I took the RMD on 12/7/21 and did the indirect rollover on 12/9/21. If I use the "bad" 1099-R, my tax calculation is wacko (not trivial in my return) and I can find no place in the return where it is corrected.

Everything you said make perfect sense except that I tried to manually enter the Vanguard 1099-R several times and the software prompted for answers to specifics as follows;

 - did you inherit the IRA

 - transfer to charity

 - health savings account?

 - qualified disaster?

Other than above, at no time did TurboTax ask "what I did with the money". I am using TurboTax Premier. The distribution code in the Vanguard form is 7, is it possible that a different set of questions are asked using a different code? What am I missing? Can you provide a pointer, possibly using the Insert Photo (camera icon) feature?

[Opus 17 · Accepted solution]

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@george100 wrote:

I took the RMD on 12/7/21 and did the indirect rollover on 12/9/21. If I use the "bad" 1099-R, my tax calculation is wacko (not trivial in my return) and I can find no place in the return where it is corrected.

Everything you said make perfect sense except that I tried to manually enter the Vanguard 1099-R several times and the software prompted for answers to specifics as follows;

 - did you inherit the IRA

 - transfer to charity

 - health savings account?

 - qualified disaster?

Other than above, at no time did TurboTax ask "what I did with the money". I am using TurboTax Premier. The distribution code in the Vanguard form is 7, is it possible that a different set of questions are asked using a different code? What am I missing? Can you provide a pointer, possibly using the Insert Photo (camera icon) feature?

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What version are you using?  When I run a test after setting my age to over 72, the first thing I am asked is

• "was this an RMD" (answer, yes--all or part)
• "how much applies to the RMD" (all or part, select part)
• "how much applies to the RMD"

Then, was this a charity distribution,

Then, what did you do with the money (select rollover)

• All or combination (combination)
• How much (enter the number)
• In this case, you can't roll over an RMD, so in my example I withdrew $6000, with $5000 the RMD.  If I enter more than $1000 as a rollover, it would create an error since the RMD amount is not eligible for roll over. 

Then HSA question

Then disaster question. 

This is the Mac version but all versions are built from the same basic platform so they should have the same screens.  What version are you using?

[george100]

Thanks, my TurboTax Version is: WinPerRelease 021.000.0421

I found the script of questions which you reported (not sure why I missed it previously). Will go back to the original 1099-R and see how it plays out. Appreciate your help and will advise as to the results.

[george100]

Bingo, it  worked just as you suggested! TurboTax made the adjustment involving my "Indirect Rollover" and my tax is properly calculated. Thanks, I can breath easier now.

[george100]

Bingo, it  worked just as you suggested! TurboTax made the adjustment involving my "Indirect Rollover" and my tax is properly calculated. Thanks, I can breath easier now.