By Ian Berger, JD
I have a client that took a $14k IRA distribution on 1/10/2021 and another $14k distribution on 2/10/2021. He wants to replace all $28k using the 60 day rollover as funds are no longer needed.
Does the 60 day rollover rule allow him to replace all 28k (from both distributions) within 60 days from the first distribution on 1/10/2021?
Or does the 60 day rollover rule only allow him to just replace one distribution taken (even though both were taken within 60 days of each other)? Thus, he can only put back $14k
Someone who does a 60-day rollover (as opposed to a direct transfer) not only has to worry about completing the rollover within 60 days. He also must comply with the “once-per-year” rollover rule. That rule says you can’t roll over an IRA distribution received within 12 months of a prior distribution that was rolled over. Since your client’s two IRA distributions occurred within 12 months of each other, he can only roll over one of the two distributions.
I manage my 95 year old mother’s taxes and finances. She has her IRA’s with Vanguard and several years ago we set it up for automatic RMD withdrawals. She had her RMD automatic RMD’s done in early 2020 and then Congress passed the CARES Act in late March 2020.
Upon learning this, I put back into her IRA the amount distributed less the federal tax withheld. Now, I received the 1099-R tax form reflecting the entire distribution as taxable despite most of it being put back into to reflect the 2020 exemption. I contacted Vanguard about this and they indicated they would be sending us a tax form in May of 2021 to reflect the corrected amount of distribution. Obviously, this is after the April 15 tax filing deadline.
Any suggestion for how I should handle this with regards to calculating and filing my mom’s taxes. Do I do her taxes, include the income from the 1099-R and then file a corrected tax return once I get the corrected form from Vanguard? Alternatively, I could use the tax software to project whether she owes any tax as a result of the Vanguard 1099-R and if not, file for an extension?
I would greatly appreciate a response.
The tax reporting rules for RMDs paid, and then returned, in 2020 are tricky.
On your mother’s 2020 Federal tax return, the total amount of the distribution will be entered on line 4a of Form 1040. Then, the word “Rollover” will be entered next to line 4b. Line 4b will show the portion of the distribution she did not roll back (the federal tax withheld). That amount will be taxable income to your mom. The tax software should be able to guide you through these steps.
The additional form Vanguard will be sending your mom is Form 5498. That form will officially confirm the rollover back to the IRA. You do not have to file that form with her tax return.