Reply To: Reporting redeposited 2020 RMD

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#14387
Kaye Thomas
Moderator

It appears you have a quite simple situation, except for one twist explained below.

I’m assuming your $70,000 was taken in the form of shares of a mutual fund or stock, there was no withholding, and the same shares were returned to the IRA. If the amount you were required to take as RMD for 2020 (without regard to the CARES Act) was $70,000 or more, you are permitted to transfer these shares back to the IRA, treating the transfer as a rollover, even though it is outside the 60-day window that normally applies, and even though the shares apparently rose in value during the time they were outside the IRA. When you take a distribution of anything other than cash, you can transfer the same property (or proceeds from sale of the property) in the rollover.

This special rule provides relief only for distributions up to the amount you were required to take as RMD. If that amount was less than $70,000, and you rounded up to that number, part of what you transferred back to the IRA doesn’t qualify for the relief. Because the this occurred more than 60 days after the initial transfer, this portion would not qualify to be rolled back.

If you happen to have earned income, you can treat this additional amount as a a regular contribution to the IRA, up to the amount of your earned income or the dollar limit on regular IRA contributions ($7,000 for those age 50 or older), whichever is less. The age limit on regular contributions to traditional IRAs has been repealed, effective 2020.

If you don’t have earned income, or if the difference between the $70,000 you withdrew and the amount you were required to take as RMD exceeds either your earned income or the IRA contribution limit, you have an excess contribution. You should notify Fidelity and have them guide you through a corrective distribution that will avoid penalties on this excess contribution. This has to be done by October 15, but the sooner you address it, the better. As a practical matter, if the amount is so small as to be trivial (for example, the required amount was $69,994), it may be reasonable to ignore the difference, but if it is at all substantial you should take corrective action.

You don’t have to submit any documentation with your return. Details of the reporting will depend on whether you have an excess amount, and if so, whether that amount is a permitted contribution or an excess contribution.