Reply To: Reporting redeposited 2020 RMD

Home Fairmark Forum Taxation of Investments Reporting redeposited 2020 RMD Reply To: Reporting redeposited 2020 RMD

#14395
Kaye Thomas
Moderator

Yes, that’s right. IRS would certainly penalize an excess in this amount if they became aware of it. Taking the corrective distribution is no big deal, but you need to contact Fidelity, rather than simply withdraw $977, because the amount you withdraw has to be adjusted for any investment earnings during the period the excess is in the IRA.

Although you’re taking the corrective distribution in 2021, you’ll have to report it as taxable income on your 2020 return. That includes the portion representing investment earnings, even if the earnings accrued in 2021.

The corrective distribution doesn’t count toward your 2021 RMD, and it’s not eligible for rollover or Roth conversion. In other words, it can’t remain in or go to a retirement account.

The penalty for failure to correct is 6%, which wouldn’t be a crushing blow, but it applies year after year until the problem is corrected, so it’s best to take care of it now.