I'm over 50 and moved $5000 from my mutual fund to my Roth IRA with same fund company. Do I pay taxes on the $5000 from 1099-B they aren't sending to IRS?

[fatebridges-sbcg]

I never received any  money, only moved it from one account to another.

[AnnetteB6]

If you moved cash from the mutual fund account to the Roth IRA, then there are no taxes involved.  If securities had to be sold in order for the transfer to take place, then a 1099-B would be generated and you would need to report the sales transaction.  

For whichever year you made the transfer, you do need to enter the information in your return to report that you made a contribution to your Roth IRA in order to validate that you were eligible to do so.

[dmertz]

From the initial information provided, it's not at all clear what transaction was performed.

1. Did this transaction occur in 2020?
2. Were the mutual fund shares held in a non-retirement account (not in an IRA)?
3. Did you sell shares in the mutual fund and then had  the cash proceeds deposited into the Roth IRA or were the mutual fund shares instead moved to the Roth IRA in-kind?

[fatebridges-sbcg]

thank you so much, I received a 1099-B with the $5000  listed but no form to say it went into my Roth IRA.

So I should enter the 1099-B into my Turbo Tax return?  What form do I need to show I contributed all proceeds to my Roth IRA?  Thank you so very much.

[fatebridges-sbcg]

1. Yes sir.

2.  Yes sir.

3. Shares moved to Roth IRA in-kind.  I never got a check, cash, or anything.

thanks so much for your help

[dmertz]

I suspected that those might be the answers.  Two additional questions:

1. Were the mutual fund shares in the non-retirement account there because of a recent in-kind distribution from an IRA or a qualified retirement plan?
2. If so, was that a distribution that would have been an RMD were it not for the CARES Act?

[fatebridges-sbcg]

1 & 2. No sir, I've been investing in the mutual fund since 1992.  Just "regular" money/shares.

Now on my 2019 return, I did get a 1099-B where I did have capital gains /proceeds I did have to pay to set up the Roth IRA.  But nothing of the sort for 2020.

Again thanks so much.  I just want to file it right with the IRS

[dmertz]

That's what I was afraid of.  The transaction that was performed was impermissible.  Regular IRA contributions are only permitted to be made in cash.

I suspect that this will have to be corrected by making an in-kind return of excess contribution to the Roth IRA, but I've never before heard of someone in this situation.  This distribution would be considered to be a distribution of Roth IRA contribution basis, so not taxable, but would require substantial explanation to the IRS.  The explanation is complicated by the fact that the return of contribution will be priced at the current value of the shares rather than the share value on the date of the contribution to the Roth IRA.

The only other way that this could possibly be addresses is by you reporting this as a sale outside of the Roth IRA on the date the shares were deposited into the Roth IRA, a deposit of the cash proceeds, and then a repurchase of the shares in the Roth IRA.  However, I know of no IRS guidance that would permit such a resolution.  If you are permitted to do this, this would be subject to wash-sale rules if the basis in the shares was more than the share value on the date that the shares were deposited into the Roth IRA.

By not issuing any Form 1099-B, the brokerage apparently is treating this as if it was an indirect rollover of an in-kind distribution from another retirement account.

It's also not clear what the Roth IRA custodian considers this deposit to be.  As an in-kind deposit, they would either have to treat it as a nonreportable transfer from another Roth IRA (but only if they somehow had some reason to believe that the shares actually came directly from another Roth IRA), a Roth conversion (but only if they somehow had some reason to believe that the shares actually came a traditional IRA), or a rollover from a qualified retirement account like a 401(k).  Since it was an in-kind deposit, it would be impermissible of them to report it in box 1 of Form 5498 as a regular contribution.  The Roth IRA custodian should not have even accepted an in-kind deposit unless they knew that it came from an in-kind distribution from some other retirement account.

[fatebridges-sbcg]

Thanks so much, sounds like I need to contact the IRS and see what to do or should I contact my mutual fund company where all transactions have taken place.

[dmertz]

I can't really suggest anything that you should do, I can only make an assessment, which I have done, of how the IRS might interpret that facts based on my reading of the tax code, many IRS publications, notices, revenue procedures and private letter rulings, as well as tax court cases involving IRAs and other types of retirement accounts.

The IRA custodian really should not have allowed this kind of mistake to be made.  It might not hurt to ask the mutual fund company how they could have allowed this mistake to happen and what they intend to do to fix it.

One other concern is that this could be viewed as a prohibited transaction that would disqualify the IRA, causing the IRA to cease to be an IRA and the account to be distributed.  However, I believe that the IRS might allow this sort of prohibited transaction to be 'cured' with the proper corrective action, I just don't know for sure what that is.

[SteamTrain]

@dmertz 

_______________________

In one of his posts above...he did say he received a 1099-B for this transaction (6:58AM Pacific).....then later indicated he didn't  (7:25:AM)

Maybe that needs to be cleared up first....if he did get a 1099-B for this year's contribution,  wouldn't that indicate the fund company effectively sold the shares...transferred cash....then bought same shares in the Roth IRA ?

Perhaps he needs to double-check his account to ensure that fund doesn't appear on a 2020 1099-B as a sale.  In some situations, 1099-B's may not have been created yet....some just recently, and  if the person held REITs in their taxable account the 1099-B may not show up until March.

[fatebridges-sbcg]

Thank you all for the help.

I think I've mis-stated the situation and created confusion.

I went back and looked at my year end summary statement.  It shows  that the fund company did redeem / sell shares for cash then purchased shares at the same price and put that money in the IRA. So I do think that I will need to enter this additional 1099-B into Turbo Tax and pay taxes on that.  I guess I was confused as to why I would pay taxes when I never received income from the sale (physically).  And on the 1099-B it says in asteriks that they are not reporting this to the IRS.  I've never seen that before and I guess if they aren't reporting it, why should I?

I'm in the process of contacting them and I think I'm going to have to enter the 1099-B and take the "hit" even though I never received any money (so to speak)

[dmertz · Accepted solution]

Thanks SteamTrain. 

[Edit]  I've deleted the questions that were originally in this reply and were all answered while I was creating this reply.

In the end, the shares were not moved in-kind.  The Form 1099-B that should be forthcoming and the Roth IRA contribution both need to be entered.  You actually did have constructive receipt of the cash from the sale, but immediately put it into the Roth IRA as a cash contribution.

The only question that remains is whether there was a loss on the sale shown on the Form 1099-B.  If so, this is a wash sale where the loss can never be recognized to offset any capital gains, assuming that the same shares were repurchased inside the Roth IRA.

[SteamTrain]

@fatebridges-sbcg 

Yeah...when the 1099-B indicates they are not reported?  What is not being reported by them is the original Purchase cost....they will still report the proceeds, so the IRS will know you sold them.... All that means is that they were (probably) long-held shares that the fund company either does not have  the original purchase price, or does, but because they were bought long ago, they may not have an accurate record of their "basis".  Thus, when you report the sale in your tax software, you will have to provide the cost basis yourself. 

Sometimes the brokerage will have a basis in that cost block for what they think you are using, and when it's in the "not reporting" situation you can change it to whatever basis procedure you are actually using (First-in-First-out, or Last-in-First-out, or Average basis )...and sometimes it is empty and you have to fill the $$ basis yourself.  The sale category for that one will likely be a Box" E"...Long Term noncovered.   (category B, Short Term noncovered, probably shouldn't exist in 2020, but I guess it could happen in some strange way)

[dmertz]

What SteamTrain describes is the same as what you should have had to do on your 2019 tax return.