Advice wanted on Fed Tax situation

[braumeister]

Quote:

Originally Posted by Alan I agree. I believe that TurboTax will ask you what you did with the $6,000 withdrawal reported on the 1099-R and you can respond with $3,000 cashed out and $3,000 rolled into an IRA which should be a non-taxable move.

Yes, this is routine.
Early last year I took my RMD for the year and not long thereafter they removed the RMD requirement for 2020. A phone call to Fidelity got it put back into the TIRA.

When doing my taxes in TT, I just told it that the amount was a rollover to the TIRA. Although the total distribution amount shown on the 1099-R included it, I just subtracted out that amount. which is shown on Line 2 of the 5498 form (and called a rollover contribution).

[Ready]

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Originally Posted by braumeister Yes, this is routine. Early last year I took my RMD for the year and not long thereafter they removed the RMD requirement for 2020. A phone call to Fidelity got it put back into the TIRA. When doing my taxes in TT, I just told it that the amount was a rollover to the TIRA. Although the total distribution amount shown on the 1099-R included it, I just subtracted out that amount. which is shown on Line 2 of the 5498 form (and called a rollover contribution).

I'm looking at Turbotax now and it's not asking me what I did with the money. It just says "enter the information exactly as it appears on your 1099-R. When I enter it with box 2a including the amount as taxable it just considers it a distribution and assesses the tax on it. What am I missing?

[braumeister]

Quote:

Originally Posted by Ready I'm looking at Turbotax now and it's not asking me what I did with the money. It just says "enter the information exactly as it appears on your 1099-R. When I enter it with box 2a including the amount as taxable it just considers it a distribution and assesses the tax on it. What am I missing?

Keep going. It should ask you in the next screen or two.

[Gill]

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Originally Posted by Ready I’m not sure I understand what to enter into TurboTax to reflect this. Right now my 1099 shows a $20K distribution, with all $20K taxable. How would I enter this as a rollover?

As Alan indicates above, Turbotax asks what you did with the distribution and you simply respond with the amount you returned to the IRA.
Gill

[Gill]

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Originally Posted by braumeister Keep going. It should ask you in the next screen or two.

Correct. Keep going to the next screens.
Gill

[SecondCor521]

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Originally Posted by Ready I'm looking at Turbotax now and it's not asking me what I did with the money. It just says "enter the information exactly as it appears on your 1099-R. When I enter it with box 2a including the amount as taxable it just considers it a distribution and assesses the tax on it. What am I missing?

I'm not a TurboTax user, but it's one of the leading brands of tax prep software and this is a situation that affects plenty of users, so I'm sure they addressed it in there somewhere. I'd poke around on those screens and look for any reference to a rollover.

But I wouldn't recommend going that way unless you are 1000% sure that the 1099 is wrong. What kind of 1099 is it? Did they say they sent the money to you? Can they show you a canceled check or bank ACH information? Did the money in fact go into your checking account or some other taxable location? Are you subject to RMDs for the first time? Is someone else involved in your finances (a spouse, a child with POA, etc.)? Did you do a Roth conversion? Did something change with that account in the last year or two? There are lots of explanations that I think are more likely than Fidelity issuing an incorrect 1099. I'm not sure of your particular level of tax acumen, but more often than not Fidelity is correct and the taxpayer is misunderstanding the situation.

[Alan]

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Originally Posted by braumeister Keep going. It should ask you in the next screen or two.

It will probably also ask when you click on the review button towards the end of the filing process.

[Alan]

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Originally Posted by SecondCor521 I'm not a TurboTax user, but it's one of the leading brands of tax prep software and this is a situation that affects plenty of users, so I'm sure they addressed it in there somewhere. I'd poke around on those screens and look for any reference to a rollover. But I wouldn't recommend going that way unless you are 1000% sure that the 1099 is wrong. What kind of 1099 is it? Did they say they sent the money to you? Can they show you a canceled check or bank ACH information? Did the money in fact go into your checking account or some other taxable location? Are you subject to RMDs for the first time? Is someone else involved in your finances (a spouse, a child with POA, etc.)? Did you do a Roth conversion? Did something change with that account in the last year or two? There are lots of explanations that I think are more likely than Fidelity issuing an incorrect 1099. I'm not sure of your particular level of tax acumen, but more often than not Fidelity is correct and the taxpayer is misunderstanding the situation.

The OP said that 2 physical checks were issued, each $3k. One check was cashed and the other expired so the $3k was put back into the IRA, so I believe the 1099 is corrected that $6k was distributed from the account. It is also true that $3k was deposited to the account by virtue of the 2nd check timing out.

[aja8888]

Thanks for the responses and I'll look into the H & R Block software I have this year and see if I can report the redeposit into the IRA as a rollover. I haven't gotten that far yet.

[Ready]

Quote:

Originally Posted by SecondCor521 I'm not a TurboTax user, but it's one of the leading brands of tax prep software and this is a situation that affects plenty of users, so I'm sure they addressed it in there somewhere. I'd poke around on those screens and look for any reference to a rollover. But I wouldn't recommend going that way unless you are 1000% sure that the 1099 is wrong. What kind of 1099 is it? Did they say they sent the money to you? Can they show you a canceled check or bank ACH information? Did the money in fact go into your checking account or some other taxable location? Are you subject to RMDs for the first time? Is someone else involved in your finances (a spouse, a child with POA, etc.)? Did you do a Roth conversion? Did something change with that account in the last year or two? There are lots of explanations that I think are more likely than Fidelity issuing an incorrect 1099. I'm not sure of your particular level of tax acumen, but more often than not Fidelity is correct and the taxpayer is misunderstanding the situation.

My situation is different and more complicated than the OP's. My former employer identified what they believed was an excess plan contribution during an audit. In an attempt to correct their error they erroneously issued me a 1099-R for $20K attempting to reclassify the income four years later as taxable. But no distribution was actually made because the entire 401K balance was rolled over to an IRA.

The 1099-R shows a distribution code "E" which is a correction of a plan error. If I were to enter code "G", direct rollover, I would not be assessed any taxes. But then I would have a mismatch between what I'm reporting and what the 1099 shows. So I don't see any way to call this a rollover unless I change the code from E to G, which I would assume would be flagged by the IRS.

[SecondCor521]

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Originally Posted by Alan The OP said that 2 physical checks were issued, each $3k. One check was cashed and the other expired so the $3k was put back into the IRA, so I believe the 1099 is corrected that $6k was distributed from the account. It is also true that $3k was deposited to the account by virtue of the 2nd check timing out.

Yep. My reply which you quoted was to Ready, who is not the OP and has a different situation.

Earlier in the thread I recommended a solution to OP - see post #14.

[SecondCor521]

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Originally Posted by Ready My situation is different and more complicated than the OP's. My former employer identified what they believed was an excess plan contribution during an audit. In an attempt to correct their error they erroneously issued me a 1099-R for $20K attempting to reclassify the income four years later as taxable. But no distribution was actually made because the entire 401K balance was rolled over to an IRA. The 1099-R shows a distribution code "E" which is a correction of a plan error. If I were to enter code "G", direct rollover, I would not be assessed any taxes. But then I would have a mismatch between what I'm reporting and what the 1099 shows. So I don't see any way to call this a rollover unless I change the code from E to G, which I would assume would be flagged by the IRS.

Ah, that's a different situation than I had imagined, a horrific one, and beyond my pay grade. I'd engage a good CPA and get their advice.

Before doing so, I'd probably read what I could on the IRS website about distribution code "E" and the tax treatment thereof, just so you could be knowledgeable when talking with the CPA. Both "E" and "G" are relatively uncommon distribution codes.

If the employer was correct in the income reclassification, then I'd guess you'd end up with some basis in your IRA and you'd get to learn the pro-rata rule and become familiar with Form 8606. But that's just a guess.

I would certainly *not* enter a code into TurboTax which is different from the one on the 1099-R.

[aja8888]

Update: I went into the tax program and followed the steps to classify 1/2 the reported 1099 as a rollover back into the IRA and the tax liability was removed.

We should be OK as the check was redeposited on August 3, 2020 before the August 31 deadline to reverse RMD amounts.

Thanks for everyone's help here! That's what this Forum is all about...helping each other with these sticky issues!

[ivinsfan]

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Originally Posted by aja8888 Update: I went into the tax program and followed the steps to classify 1/2 the reported 1099 as a rollover back into the IRA and the tax liability was removed. We should be OK as the check was redeposited on August 3, 2020 before the August 31 deadline to reverse RMD amounts. Thanks for everyone's help here! That's what this Forum is all about...helping each other with these sticky issues!

good solution and my Bad, some tax experts here did help you figure out your best option. Unfortunately, the bad taste that Schwab left in your mouth won't go away any time soon.

[Buckeye]

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Originally Posted by SecondCor521 If the timing in the OP is accurate, there may be a much easier way to handle all of this due to the CARES Act and subsequent legislation. The CARES Act suspended all RMDs for 2020. Subsequent legislation allowed individuals who had already taken RMDs to redeposit those RMDs back into their IRAs by 8/31/2020. These redeposits would be treated as a rollover for tax purposes, with the additional benefit that the "rollovers" were not subject to the one rollover per 12 month period rule. So if I were in OP's shoes, I would treat the second $3K as an RMD that was made in February then redeposited by 8/31. For tax purposes, then, the $6K would be reported as a distribution on the 1099-R, but the taxable amount should be reduced to $3K. If there is an option to indicate in the tax program you're using that the other $3K was a rollover, I would do that; the word "ROLLOVER" may show up on line 4b. You should end up with $6K on line 4a of the tax return and $3K on line 4b of the tax return (plus any other IRA distributions that you may have taken from your own IRAs, of course). This would save you the uphill battle of trying to get a corrected 1099-R, which I doubt you'd be able to do. It also will perfectly match things up for the IRS. Since they say they are sending you a Form 5498 in May, that would be the proper thing for them to do if they are treating it as a rollover contribution. The 5498 would have the $3K in box 2 of that form. But they might also code it as a regular contribution and put the amount in box 1, which is not what you'd want in this scenario. I'd probably call them now and see if they can confirm that they are treating it as a rollover contribution and not a regular contribution, and if not, ask them to do so given the circumstances. Once you receive it you would want to file it for your records with your 2020 tax paperwork. ... If you were a "qualified individual" subject to the CARES Act, you could also treat it as a coronavirus-related distribution and repayment on Form 8915-E. It's a similar but more complicated path, so I don't know why you would take it, but I mention it for completeness' sake. ... Also, really disappointing customer service from Schwab. When my son had a thing that he had to handle with his (excess contribution, IIRC), we went into the local Schwab office, which seemed to be helpful for explaining the situation and getting it fixed. We did have to involve the branch manager, but the problem did get fixed appropriately. If you have a local Schwab office I'd suggest considering an in person visit.

I think this is good advice for the OP because this is exactly what happened. The second distribution really was a rollover (distributed but then redeposited within the required time frame) so that's how it should be handled on the OP's tax return.

[ZachTB]

@aja8888 - glad your problem was resolved! An interesting question.

@Ready - yikes! Fidelity thought they gave you $20K and you didn't actually receive anything?! Now we're in the sticky philosophical situation of trying to prove a negative: trying to prove to the IRS that you didn't receive any money when Fidelity says you did.

I'd imagine that the IRS would be inclined to believe Fidelity, but there would have to be some sort of procedure to address record-keeping errors. For example, consider a company that employs two different people named David Smith, and one takes a 401k loan. Perhaps you have a common name, and therefore record-keeping confusion could be a possible explanation for your situation?

[aja8888]

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Originally Posted by ivinsfan good solution and my Bad, some tax experts here did help you figure out your best option. Unfortunately, the bad taste that Schwab left in your mouth won't go away any time soon.

Everyone helped and you are right, after 37 years with Schwab, I am not happy. I had to threaten in my complaint to close my accounts if someone didn't call us back. Even with the call back, I was blown off.

It seemed to me that since most Schwab folks were working from home, they were not as resourceful. Even my long time rep at Schwab was no help except to tell me to try to call the "retirement folks" but didn't offer a direct number to call. Consequently, I was on hold thru the main number and a second transfer for quite a while. And then ended up with someone who seemed like she didn't have time for me.

[ExFlyBoy5]

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Originally Posted by aja8888 Everyone helped and you are right, after 37 years with Schwab, I am not happy. I had to threaten in my complaint to close my accounts if someone didn't call us back. Even with the call back, I was blown off. It seemed to me that since most Schwab folks were working from home, they were not as resourceful. Even my long time rep at Schwab was no help except to tell me to try to call the "retirement folks" but didn't offer a direct number to call. Consequently, I was on hold thru the main number and a second transfer for quite a while. And then ended up with someone who seemed like she didn't have time for me.

The scary thing is that folks are reporting similar issues with all of the big brokers. I have had nothing but issues w/ TDA (which I guess is technically Schwab now) and VG has been a pain as well. Just not sure what us "little guys" can do to get good service these days.

[target2019]

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Originally Posted by Mark1 +1 Maybe I'm naive, but I still believe being fact based, honest, and just trying to do the right thing is always the simplest approach and your best bet.

Yes, stretching the truth is not necessary.

[target2019]

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Originally Posted by ExFlyBoy5 The scary thing is that folks are reporting similar issues with all of the big brokers. I have had nothing but issues w/ TDA (which I guess is technically Schwab now) and VG has been a pain as well. Just not sure what us "little guys" can do to get good service these days.

In the thread question it is acknowledged that two RMDs were requested, one in error. There are errors that can be corrected, given the IRS requirements and institution rules. Fortunately there is great advice from others, and it sounds like OP is almost there with a solution.