Partial return of RMD

[garyl807]

I mistakenly took out $37K from my IRA as a RMD. It was returned to the IRA in 3 days.

I asked Schwab for a corrected 1099R but they said they would send me a form 5498. 

How do I enter this in Turbo Tax??

Thanks in advance.

[VolvoGirl]

Why isn't it a RMD?  Did you already take your RMD or take out more?  You can't put back or rollover any RMD amount.  You can replace any excess within 60 days.  After you enter the 1099R it will ask what you did with it.  Say you moved it to another IRA even if you put it back into the same account.  Did they take any withholding out of it?  You had to replace the withholding from your own money or the withholding will become a distribution and taxable.  

@dmertz 

[dmertz]

Assuming that funds that you returned to the IRA were not an RMD or were in excess of your RMD, what you did was an ordinary distribution and rollover, provided, as VolvoGirl said, it was done within 60 days.

[garyl807]

I had originally converted the required RMD from my IRA to a Roth including taxes. The transactions were recorded but my account showed that I hadn't taken any RMD.

So I called Schwab....many times trying to get this resolved. I wound up taking another $37K to satisfy the RMD requirement. All of a sudden my account shows that I've taken out $37K too much. I rolled this back into the IRA 3 days later.

Now I have a 1099R with this total inflated value that I have to pay taxes on. I need to figure a way to reduce it $37K for tax purposes.

[VolvoGirl]

Uh you can not convert your RMD to a ROTH account.  You have to take the RMD out in cash. So you still needed to take the RMD.  Don't understand what was done to correct it.

[garyl807]

According to Schwab the conversion was OK. I can convert any amount as long as the taxes are paid. I did convert some ETF's which they said were fine.

[VolvoGirl]

Ok now what did you put back?  Did you put back the ROTH to the regular IRA or the RMD you actually took out?  I think you owe tax on both.  And you can't put back the RMD.  So you probably need to take it out again.  @dmertz is the expert around here so hopefully he checks back in.  

[dmertz]

What a mess, made a bit worse at each step, it seems.  As I understand it, the amount that you should have taken as your RMD you converted to Roth, which the law prohibits despite what Schwab said, and the first funds distributed from your IRA in an RMD year are the RMD; the RMD is required to be satisfied before converting any other amounts.  You then took a distribution which you subsequently rolled back to the traditional IRA (which is fine except that it unnecessarily triggers the one-rollover-per-12-months limitation).  If my understanding is correct, you have a failed Roth conversion that has resulted in an excess Roth IRA contribution that is subject to penalty unless corrected by a return of excess contribution before the due date of your tax return, including extensions.  Because the Roth conversion is a failed conversion, you have no 2023 Roth conversion.  Either the Schwab rep was not aware that the Roth conversion was done with your RMD or they are poorly trained with regard to the laws governing RMDs (which would not surprise me).

[Opus 17]

---

@garyl807 wrote:

According to Schwab the conversion was OK. I can convert any amount as long as the taxes are paid. I did convert some ETF's which they said were fine.

---

You can convert any amount from an IRA to a Roth as long as you pay the taxes, but it is not your RMD.

Bottom line: If you are required to take an RMD, you must withdraw that first.  It goes into your checking account and you pay the taxes, and then you can invest it in a non-tax preferred broker account (or give it to your grandkids, or buy a car, whatever).  But it can't be rolled over.

After you withdraw your RMD amount, then you can perform a rollover with additional funds.

As noted, you have a failed rollover and you missed your RMD for the year.  You might want to discuss with a tax professional.