The new tax bill eliminated the RMD I owed for 2020 filing. What happens to the federal tax that was withheld by the custodian when the RMD was issued to me?

[KathrynG3]

It depends. If the taxes have already been withheld, the tax will be credited to your account as a tax payment with the IRS. If the distribution did occur, even though it was not required, you could still receive Form 1099-R and have to report that income.

I suggest consulting your financial planner for information about their particular method of reversing an unneeded RMD.

See this article for information about Reporting Form 1099-R.

Please see these resources for further IRS guidance:

January 27, 2020 IRS Provides relief to financial institutions affected by tax law change raising the age for required minimum distributions

Notice 2020-6 Relief for Reporting Required Minimum Distributions for IRAs for 2020.

IRS Retirement Topics RMDs

[fanfare]

The new $2T CARES bill eliminated the REQUIREMENT for the RMD.

If you already took the RMD, then pay the tax on that.

Note: You have 60 days to roll the money back into your IRA (or a different IRA).

Depending on the date of distribution, that 60 day period may have a few day remaining for you to take advantage of.

[mcgintyboy]

How would you roll the RMD back into your IRA? 

What if you delete the RMD from the worksheet but leave the tax paid there? Since the tax has already been sent to the IRS by the custodian it will show as a credit to total taxes paid and be refunded.

[dmertz]

Only an RMD distributed in 2020 can be rolled back to an IRA.  An RMD distributed in 2020 should not appear anywhere on the 2019 tax return that you are preparing now, so such a distribution should not be on any worksheet in 2019 TurboTax to begin with.

[mcgintyboy]

Agree. There is some discussion about extending the 60 day rule which I think would be fair. Many people already took the RMD over 60 days ago. If they did take the RMD and had taxes withheld these taxes will carry over as a credit to next year's 2020 filing. 

[sansouci]

OK. I took my RMD before guidance was issued that it was not required under the CARES Act. So within the 60 rollover window, I rolled the net amount back into the IRA). But Federal and state taxes for 2020 were withheld and could not be refunded. So how do I adjust my estimated taxes (I'm retired so there is no W-2 income) which are driven by the 100% or 110% safe harbor rules. I don't want to pay excess estimated taxes? Maybe the easiest way is to reduce my tax withholding on my pensions for the remainder of 2020.

Any other ideas regarding the TT program adjustments?

[sansouci]

More to my story:

I rolled both the net distribution and some after tax money to allow the IRA to have the entire amount it had before the distribution. So in 2020, do I need to adjust the IRS Form 8606 to increase the basis of the rollover contribution by the amount of taxes already paid?

[Opus 17]

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@sansouci wrote:

OK. I took my RMD before guidance was issued that it was not required under the CARES Act. So within the 60 rollover window, I rolled the net amount back into the IRA). But Federal and state taxes for 2020 were withheld and could not be refunded. So how do I adjust my estimated taxes (I'm retired so there is no W-2 income) which are driven by the 100% or 110% safe harbor rules. I don't want to pay excess estimated taxes? Maybe the easiest way is to reduce my tax withholding on my pensions for the remainder of 2020.

Any other ideas regarding the TT program adjustments?

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There aren't any adjustments to make in Turbotax, the program is designed for end of year tax preparation, not mid-year tax planning.

You already know the answer here.  If you had (for example) $1500 of estimated taxes withheld and don't want to wait for a refund, reduce your other withholding by $1500 over the rest of the year (about $250/month for 6 months). 

[dmertz]

Your basis does not increase by substituting other funds to replace those withheld for taxes because taxes can only be paid with after-tax money.  You are simply replacing one after-tax dollar with another after-tax dollar, so there is no change in basis (and by rolling over that dollar it goes back to being pre-tax since it will be excluded from from your AGI on your tax return).  The taxable result of rolling over the entire gross amount of a distribution is the same as if the distribution never happened.

[KRC1]

Have not & do not plan to take 2020 RMD based on new tax bill.  Used TurboTax for 2019 tax prep & now wondering about the est. tax calculations for 2020.   I am thinking TurboTax calculated a 2020 RMD distribution, like previous years & based my est. taxes for 2020 using this income?  So are my estimated payments accurate or must I recalculate & if so, can I do this with my 2019 TurboTax software?   Need advice please.

[Critter-3]

If you are paying estimates based on the expected RMD  and you are not taking the distribution then of course the estimates will be too high ... so don't make the 4th quarter payment in January.  Then when you complete the 2020 return the excess payments will be refunded automatically.   Then you can decide how much to get and how much to use to pay the 2021 estimated payments.  

[kokjohnj]

I have my 1099R which includes money withdrawn and taxes paid, but in September I reversed my distribution but taxes are still paid.  Talked to Vanguard about how reversal works and they said my Turbo Tax should have a question on how to handle money reversed on RMD.  I'm unable to find this box on Turbo Tax 1099R form???

Help

[VolvoGirl]

Since there is no RMD required for 2020,  after you enter the 1099R say it was NOT an RMD and then that you rolled it over (even if back into the same account).  Was any withholding taken out?  If it was then did you replace the withholding with your own money?  Otherwise the withholding will be a taxable distribution itself.

[kokjohnj]

If I check the box (No, none of this withdrawal was an RMD), won't I still have to pay tax on this? 

How would IRS know the fund was rolled back into the account?

Does Turbo Tax still account for this as income, I don't want to pay tax on funds which was reversed.

Also the tax was not paid back and shows on 1099R, how do I use this tax as credit to apply to other income?