IRA Distribution Question

[Ian S]

If I take a one time IRA distribution in December 2018 and change my mind in January 2019 and put it back in the IRA within the 60 day time frame, I assume taxwise it's as if the distribution never occurred. The 1099-R for 2018 will show a distribution but I'm guessing it won't show the funds were put back. How is that situation handled at tax time?

 

[SecondCor521]

I'm not sure but I believe you have to tell them at the time of distribution if it is a distribution or a rollover.

If you state that it is a rollover and you put it back within the 60-day timeframe, then I believe you do not owe any taxes.

If you state that it is a distribution when it is made and you change your mind and try to put it back in, I think (a) they won't accept you changing your mind after the fact, (b) will report it to the IRS as a taxable distribution, and (c) won't accept your "redeposit" because the "redeposit" would be treated as a contribution, which would be subject to the $5,500 annual contribution limit.

So if you do what you're trying to do, I bet you'll be paying taxes (and penalties if you're under 59 1/2 and don't qualify for any of the exceptions) on that withdrawal.

But I'll admit I'm not sure and would not be surprised to have someone correct me.

 

[jazz4cash]

I don't think an institution will take your word that the funds are being rolled over. They may provide the right code on the 1099R if it is a direct transfer (e.g. made payable or sent directly to the new trustee).

If you use tax software, it will ask you if you rolled over any part of the funds distributed on the 1099R. When you click "YES" and enter the amount it will exclude the rollover amount from the taxable distribution. It will also put the term "ROLLOVER" on the tax form for the applicable line (15b or whatever). You can do the same thing if you prepare your taxes manually.

I don't think there is really any way for IRS to track all IRA funds. I have transferred funds from institution A to B to C and it looks like a 2X distribution.

 

[Souschef]

.

If you use tax software, it will ask you if you rolled over any part of the funds distributed on the 1099R. When you click "YES" and enter the amount it will exclude the rollover amount from the taxable distribution. It will also put the term "ROLLOVER" on the tax form for the applicable line (15b or whatever). You can do the same thing if you prepare your taxes manually.
.

One Caveat-The software at the IRS does not look at comments like "ROLLOVER". on the 1040. I made a QCD from an account, and on the 1040 the tax software indicated "QCD". Since it was the only withdrawal from that account, the IRS 1099 matching program flagged it and I got a letter from the IRS asking why I had not reported it.
I had to send them a letter of explanation, along with copies of my 1040 indicating QCD, and the underlying sheets from the 1099.tax software.

 

[kaneohe]

To me this seems similar to a Roth conversion in one year and then a recharacterization (no longer allowed) in the next yr. The 1099R for this case would have shown the withdrawal from TIRA in one year which you would report in the distribution (pt a) of the 1040. Since IRS would not know you had recharacterized , you would write up a narrative describing the details of what happened and then enter 0 in the taxable part of distribution (pt b) . IRS would see the proof of recharacterization in the 5498 for that next yr...much later.

For OP's case, the 1099R would show the withdrawal from TIRA which you would report in pt a) of the distribution line. Again you would report the taxable part as 0 in pt b of that distribution line. The coding ROLLOVER would key the IRS to what happened and again the 5498 for the next yr would show the rollover.

You need to be careful of the 1 rollover per every 365 days (not 1 per calendar yr) and that 1 count includes both TIRA and Roth combined.

 

[pb4uski]

I was thinking the same thing... the distribution will be reported to the IRS and the taxpayer on 1099 in 2018.... and a rollover contribution in 2019... but the taxpayer will report the rollover contribution on their 2018 tax return to offset the distribution.

 

[kaneohe]

I guess this thing is even more like the olden recharacterizations than I thought. You're supposed to include a narrative that explains the split yr nature of the even. From a slick IRS tool https://www.irs.gov/help/ita/do-i-n...of-an-ira-or-retirement-plan-on-my-tax-return (after you complete this, you will see that the picture can be much more complex than we see it)

the answer:

"Do I need to report the transfer or rollover of an IRA or retirement plan on my tax return?

You need to include your rollover or transfer on your tax return.
Although the amount rolled over is a tax-free transaction, it is a reportable event.

Include the total amount distributed on the IRAs, pensions, and annuities, line "a" of your tax return. Also, enter “Rollover” next to line “b”.

Include a statement with your tax return explaining that the distribution was taken in 2018, but the rollover was completed in 2019."

 

[jazz4cash]

Maybe I am missing something but it seems some of you are making this way more complicated than it needs to be. It’s a simple 60 day rollover. I rechecked the 1040 Instructions to see if anything changed for 2018. It appears to be as I described earlier but the amounts and “ROLLOVER” label go on line 4a and 4b.

 

[kaneohe]

The only addition is if the rollover spans 2 tax yrs..............
from the 1040 instructions for the IRA distribution line:

'If you rolled over the distribution into
a qualified plan or you made the rollover
in 2019, include a statement explaining
what you did.'
*************************************************
If you made the withdrawal in 2018, the 1099-R will show that.
There will not be any confirming document in 2019 for the completion of
the rollover in 2019 so IRS wants to know not to look for it until 2020.....
your written narrative will tell them that.

 

[Ian S]

Thanks to all for the informative replies. I decided to do a roth conversion. I have very little income this year (no SS yet) and have relied on money in after tax accounts. I may need this money next year so having it in the roth as opposed to a distribution gives me the best of both worlds. If I need it, I can take it out, if not it stays in the roth and grows tax free. Meanwhile, I've done a conversion in a year with little other income.

 

[kaneohe]

........................... I decided to do a roth conversion. ................................ I may need this money next year so having it in the roth as opposed to a distribution gives me the best of both worlds. If I need it, I can take it out, if not it stays in the roth and grows tax free. ...................

Generally a withdrawal and conversion to Roth is better than just taking a withdrawal if you don't need the funds right away. You don't give enough info so some look before you leap info and then you can decide from the table below.

The key is your age when you withdraw from the Roth. The base rule is that you can withdraw original contributions any time. Your conversion however is
different.......some call it a conversion contribution which just muddies the wager. In the table below you are doing a conversion. Again not enough info but I am assuming you are doing a taxable conversion....paying tax to convert.
If so and you are under 59.5 when doing the Roth withdrawal, you will pay a 10% penalty on funds that come from that taxable Roth conversion unless the conversion is 5 yrs old.

On the other hand, the table shows that if you are over 59.5 when you do the Roth withdrawal, there is no penalty on your conversion funds.

You didn't say if this is your first Roth.........if it isn't you may have other original Roth contributions and older conversions that may be available for
you to withdraw.

Re: Roth IRA Rules - Table Approach
Posted by: KAWill, March 12, 2018 06:27PM
......................

Roth IRA Distribution Table

UNDER AGE 59.5
FIVE YEAR CONVERSION HOLDING PERIOD NOT MET

Contributions: Tax-No, Penalty-No
Conversions: Tax-No, Penalty-Yes (Taxable Portion)
Conversions: Tax-No, Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes, Penalty-Yes

UNDER AGE 59.5
FIVE YEAR CONVERSION HOLDING PERIOD MET

Contributions: Tax-No, Penalty-No
Conversions: Tax-No, Penalty-No (Taxable Portion)
Conversions: Tax-No, Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes, Penalty-Yes

OVER AGE 59.5
LESS THAN FIVE YEARS SINCE OPENING FIRST ROTH IRA

Contributions: Tax-No, Penalty-No
Conversions: Tax-No, Penalty-No (Taxable Portion)
Conversions: Tax-No, Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes, Penalty-No

OVER AGE 59.5
FIVE YEARS OR MORE SINCE OPENING FIRST ROTH IRA

All Distributions Are Qualified

No Taxes
No Penalties

The Roth IRA Distribution Table shows the ordering rules as presented in IRS Publication 590-B.

This table is not applicable to timely distributions of excess contributions, return of regular contributions, or the Roth IRA Exceptions listed in IRS Publication 590-B.

 

[Ian S]

OVER AGE 59.5
FIVE YEARS OR MORE SINCE OPENING FIRST ROTH IRA

All Distributions Are Qualified

No Taxes
No Penalties

Thanks for the info. The above is my situation. I am 67 and have had this Roth for over a decade. As I read this, it seems to me that because the Roth account is over 5 years old, all distributions are qualified including any monies from the most recent contributions and earnings. Is that your understanding?

 

[kaneohe]

Thanks for the info. The above is my situation. I am 67 and have had this Roth for over a decade. As I read this, it seems to me that because the Roth account is over 5 years old, all distributions are qualified including any monies from the most recent contributions and earnings. Is that your understanding?

Yes, you have looked so ok to leap.......