How to handle Form 5329-T And CARES Act Rollover?

[TurboLover2]

I took a 2020 partial distribution of RMD from a beneficiary IRA in early 2020 but returned it to the same account before the deadline to do so without penalty under the CARES Act. On Form 1040, I treated this as a rollover with none of the distribution taxable.

The CARES Act, removed the requirement to take an RMD in 2020 so there should be no penalty for not taking this distribution.

However, when I look at the Forms view in TurboTax it shows Form 5329-T with a single entry in the "Waiver of Tax Smart Worksheet," showing "The amount of require distributions that was due to reasonable error upon which you request a waiver of tax."

It shows an amount for that entry highlighted in red as an error that has to be fixed.

There are no other entries on that form or the worksheets with the form.

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My questions:

1. Do I need to request a waiver even though the CARES Act didn't require an RMD for 2020?

2. If so, what do I say, and what do I do with this form and this error to properly complete it.

3. I'm thinking that if I change that amount to zero, maybe the form will go away. But I don't want to do that if this form is supposed to be filed.

So what do I do to get the proper reporting for this situation?

Thanks!

Here's a screenshot of what TT is saying when it wants me to correct the error when I "Review" the federal taxes.

[macuser_22]

Delete the 1099-R you entered and re-enter.

Answer the RMD question that "None of this distribution was a RMD" or"RMD not required" depending on the TurboTax version - because it was NOT a RMD, there were no 2020 RMD's.

If this is an inherited IRA then answer the "Is this IRA inherited" with NO. The purpose of that question is to PREVENT rolling an inherited IRA over, but ti is allowed for 2020 only.

Then you will get the screen to say it was "moved" and all rolled over.

That will put the 1099-R box 1 amount on the 1040 form line 4a with the word ROLLOVER next to it.

[TurboLover2]

"That will put the 1099-R box 1 amount on the 1040 form line 4a with the word ROLLOVER next to it."

Thank you but I've already done that part and It came out correct.  My question is what to do with the 5329-T that TT generated after completing that part.

[TurboLover2]

I'll try it again...

[macuser_22]

There is no 5329 of you answer  "RMD not required".  If you answer RMD not taken or not all RMD taken then you will get the incorrect 5329.

Delete the 1099-R that should remove the 5329, it it does not then delete the 5329 before re-entering the 1099-R.

[TurboLover2]

Even if you answer no to the question about whether or not it was an inherited IRA, it still treats it as an inherited IRA because Box 7 of the 1099-R is type 4 (Death).

This problem seems to be another bug in Turbotax related to the CARES Act. provisions.

Here is the workaround I used.

I set the value of the worksheet field I posted above to zero.  That way the form still appears when I look at the forms, but it doesn't print out or seem to have any other effect on anything else.  And it passes the "Review" test.

I don't believe that Form 5329-T needs to be filed in this scenario so the solution seems to generate an accurate result.

[TurboLover2]

It's weird.  Even though box 7 of the 1099-R is set to 4, TT still asks if you inherited the IRA.  Then, if you answer NO, the first question it asks is when the person you inherited it from died.

So this seems to be riddled with bugs.  That's disappointing because one of the main reasons I use TT is so I won't have to bother worrying about the special rules that apply to the particular year I am filing.  I assume they will keep on top of that for me so I don't have to bother with it.

Now I know that isn't right ... at least not in this case.

[macuser_22]

The form you posted - line 50 and 51 are for ABLE (Achieving a Better Life Experience (ABLE) Act of 2014) accounts and have nothing to do with an IRA.

Delete the 1099-R and 5329.     The inherited IRA  shoukd not generate any 5329 form entered this way:

[NITE:  It is the 2nd RMD question before the 1040 form I posted that produces the 5329 if the RMD question is not answered the way I showed]

[TurboLover2]

I'll try that again just out of curiosity even though this is already solved.

But when I did it about an hour ago, after it asks if Joe inherited the IRA I answered No and then it asked me when the IRA owner I inherited it from died anyway.  After completing that I answered all the other questions the same way you did.

I'll let you know what happens.

[TurboLover2]

Okay, I tried it again and got the same result that I got last time.  We seem to get different results.  Maybe that's about using different TT versions.

After the screen that asks me if it is an inherited IRA and I answer no, it gives me this screen:

I notice that even in your screenshots when you answered No, it asked you "When was this INHERITED IRA...."

...Which makes no sense because you just answered that it was not inherited.

Anyway, the bottom line is that the return appears to be accurate now.  Had I known it would be such a hassle to handle this I probably would never have returned the RMD to begin with.  I was counting on TT to breeze me through it but it disappointed.

Thanks for all your effort and help.  I learned some things from the things you said.  I appreciate that.

[macuser_22]

That questioning is irrelevant. 

All desktop interviews for 1099-R's are the same.

Is your software up to date?    The current release is r21 dated March 10.  There were several 1099-R changes.

When you delete the 1099-R does the 5329 go away?

Do you have any other 1099-R's.    The 2nd RMD question applies to *you* not the inherited IRA and applies to all 1099-R's that you have entered.  

[TurboLover2]

Software is up to date.

"When you delete the 1099-R does the 5329 go away?"

I can't say for sure because I deleted it first after I zeroed out that entry and it no longer had any entries.  But I can report that it did not come back when I reentered the 1099-R.

"Do you have any other 1099-R's."

No, just that one.

"The 2nd RMD question applies to *you* not the inherited IRA..."

How can that be?  The question says "We need to determine how old This  Person would have been if they had lived..."  So it seems clear that it is referring to the dead person from whom the IRA was inherited, not the living person who is reporting it.

[macuser_22]

That is not the question  I was referring to.    See my screenshots - the last screenshot is the 1040 form, the one just before it is the 2nd RMD question will get if *you* have taken your RMD if you are over age 71.

[TurboLover2]

Okay thanks.

Well in conclusion, TurboTax does not work properly for this scenario which is troubling since it was a major income tax related change that happened many months ago and they should have had it in the code long before now.  And the second conclusion is that with a combination of workarounds my returns are now correct.

Thanks again for your help. 🙂

[tharais1]

Thank you!  Thank you!  Thank you!

I've got that exact same thing going on and it was driving me crazy.