June 23, 2020 at 6:12 pm #7288
The IRS has issued Notice 2020-51: https://www.irs.gov/pub/irs-drop/n-20-51.pdf
Taxpayers who received amounts that would have been RMDs for 2020 are now able to roll them back until 8/31. This includes such January distributions and other RMD amounts that could not have been rolled back due to the 60 day deadline or the one rollover limitation. Accordingly, all amounts that would have been RMDs can now be rolled back through 8/31, resolving some inequitable situations that taxpayers have been complaining about.November 25, 2020 at 4:30 pm #8332
Question on how to report the 401k RMD distribution rolled back to same 401k? In notice n-50-51, FAQ #8 and #9 (on pages 8 and 9) make it clear that an RMD which has been taken, can be rolled back into the 401k. Furthermore that the lack of tax withholding is not an obstacle. As the trustee of my solo 401k I would normally prepare a 1099-R to report the RMD distribution, and would also report the distribution on form 5500-EZ. I would be unsure on how to report the rollover back into the account. The 1099-R reporting could be messy – in that the standard distribution codes for the 1099-R don’t have an option for rollover eligible cash distribution with no withholding. Would it be OK to report nothing at all on a 1099-R and on the 5500-EZ? I did return the funds is less than 60 days, with the funds coming out of my 401k bank account and being returned to my 401k brokerage account. My plan documents do allow for rollovers, and do allow the Trustee (me) to personally hold funds when moving from one investment vehicle to another. So maybe I can reclassify what had been intended as an RMD distribution as simply a within-plan reallocation of investments with no reporting requirements!
Insights would be appreciated. I will need to figure this out before deciding whether to issue a 1099-R early next year.November 26, 2020 at 1:10 am #8341
The Notice does not make exception for 1099R reporting for distributions, but did you even make a distribution? If you just moved funds from the brokerage account to what you describe as a 401k bank account as opposed to a personal bank account, then the funds never left the plan. In that case there was no distribution and no need for a 1099R or reporting a distribution and rollover on your return. Also no impact on your 5500 EZ.
However, all this does raise a question regarding distributions including RMDs for other years. An RMD must be distributed to an account that is outside the 401k plan.November 27, 2020 at 4:40 am #8350
Thank you for the prompt reply. The sequence was this: In March, I took an RMD by moving funds from my 401k bank account to a personal account, without withholding taxes. The RMD rules were then changed. In May, less than 60 days from the initial transaction, I moved the funds from my personal account, back into the same 401k, but this time into the 401k brokerage account. The 401k bank account and the 401k brokerage accounts have identical registrations for which I am the trustee.
The 401k plan does allow for rollovers, so i know that I am in compliance with the plan and with notice n-50-51.
If the IRS would consider this as an erroneous distribution which was immediately rectified, no reporting would be needed. if I must report the withdrawal, how do I code the 1099-R as a normal distribution? And how do I report the rollover back into the 401k in May? Would the later just be an entry on line 7c of F5500-EZ?
Maybe I’m overthinking this and trying too hard to avoid the reporting!
Any insights would be appreciated.November 27, 2020 at 3:33 pm #8354
OK, now your concern makes more sense. You did make a distribution that went into your personal bank account, and therefore must report it on a 1099R, code 7 (normal Dist). However, unless you need to file a 5500 EZ (or 5500 SF) for another reason, you do not need to file the form due to rolling back the “would have been” RMD to the plan. The 5500 EZ instructions request reporting rollovers from OTHER plans, but this is not a rollover from another plan, it is just a return of the amount of the would be RMD from your personal checking account. And there is no other form needed to report the return of the would be RMD to your plan.
However, you will need to report the distribution and rollback on your 1040 (lines 4c and 4d) to prevent the 1099R from becoming taxable. As noted earlier, the IRS Notices do not allow a plan trustee to avoid the issuing a 1099R if a non loan distribution is made.December 2, 2020 at 11:57 pm #8590
Thank you Alan.
Your directions are clear, and the IRS filings should be easy.
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