Solved: IRS RMD Rollover of early 2020 distribution
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Howard1948
Level 7

IRS RMD Rollover of early 2020 distribution

The IRS just released a notice that all early distributed 2020 IRA RMDs are eligible for a rollover to avoid paying tax on that distribution under the COVID rules.  The notice is pretty understandable but appears to leave out one particular situation.  Let's say one took the RMD in January 2020 and had 25% of the RMD sent directly to the IRS as withholding.  Say the total distribution was $40,000 -- the taxpayer received $30,000 and the IRS (US Treasury) received $10,000.  Now the taxpayer wants to "undo" the RMD by returning the money to the trustee.  But the taxpayer only has $30,000 available to return.  How does the taxpayer get the $10,000 tax payment returned from the IRS?  Or does he just have to come up with the other $10,000 from other available funds?  Or can he just return $30,000 and treat the other $10,000 as a normal distribution and have to wait until he files his 2020 return to get a refund of the taxes?

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VolvoGirl
Level 15

IRS RMD Rollover of early 2020 distribution

Yes you will need to replace the withholding with some other money or the withholding will become a taxable distribution.  So you might  owe some tax on the 10,000 on your return next year.  But either way you will get credit for the 10,000 withholding.

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8 Replies
VolvoGirl
Level 15

IRS RMD Rollover of early 2020 distribution

Yes you will need to replace the withholding with some other money or the withholding will become a taxable distribution.  So you might  owe some tax on the 10,000 on your return next year.  But either way you will get credit for the 10,000 withholding.

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macuser_22
Level 15

IRS RMD Rollover of early 2020 distribution

https://www.irs.gov/newsroom/irs-announces-rollover-relief-for-required-minimum-distributions-from-r...

 

The entire amount can be rolled back.   If tax was withheld then that will be recovered when you file your 2020 tax return with the 2020 1099-R box 4 withholding.   It will be added to all 1099 and W-2 withholding to offset your 2020 tax liability or add to your refund.     There is no way to recover that withholding now because it has already been sent to the Treasurer.

 

You would have to make up the withholding form other funds in order to roll the entire amount back.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
macuser_22
Level 15

IRS RMD Rollover of early 2020 distribution

 
**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
macuser_22
Level 15

IRS RMD Rollover of early 2020 distribution


@VolvoGirl wrote:

Yes you will need to replace the withholding with some other money or the withholding will become a taxable distribution.  So you might  owe some tax on the 10,000 on your return next year.  But either way you will get credit for the 10,000 withholding.


There would be nothing owed for the tax withheld if the entire amount of RMD is rolled over having made up for the withholding from other funds..     Money is fungible so it does not matter which pocked it comes from.   No different than if there was NO tax withhold but estimated tax was paid separately to the IRS from other funds - the estimated tax would be recovered on the 2020 tax return  the same way.  

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
VolvoGirl
Level 15

IRS RMD Rollover of early 2020 distribution

Yes?  I was saying that.  I guess I wasn't clear enough?

fanfare
Level 15

IRS RMD Rollover of early 2020 distribution

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

 

what if you took a distribution that would not have been an RMD? can you roll that over by Aug 31?

 

OR, does the July 15 deadline still apply to such a distribution?

 

Critter
Level 15

IRS RMD Rollover of early 2020 distribution

Only the RMD can be rolled back in AFTER the 60 day window has expired.  

fanfare
Level 15

IRS RMD Rollover of early 2020 distribution

"The notice is pretty understandable ..."

 

Not !

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