Tax Tip: Reporting a 2020 RMD From an IRA That You Later Returned
If you paid back a "required minimum distribution" from an IRA last year, you still have to report the payout on your 2020 tax return.
Did you return a 2020 required minimum distribution (RMD) from an IRA after learning that RMDs were waived last year? If so, you need to know how to report it on your 2020 tax return – but it's a tad tricky.
RMDs from IRAs, 401(k)s and certain other retirement accounts were suspended for 2020. But some people took out an RMD in early 2020 before the waiver was enacted in late March. Those people had until the later of August 31, 2020, or 60 days after the payout to put the money back into the account and treat the distribution and subsequent redeposit as a tax-free rollover.
If you took an RMD from an IRA last year and then paid it back in time, the Form 1099-R you get this year from your IRA custodian will show the original payout – but it won't account for the later return of the funds. In other words, the tax-free rollover won't show up on the form.
Don't worry, though. The 1099-R is not wrong. Rollovers are generally not reflected on the 1099-R because custodians know only about the distributions. They're generally not aware of a future rollover.
Your 2020 Tax Return
When filling out your Form 1040 or Form 1040-SR for the 2020 tax year, you should include the total amount of IRA distributions shown on your Form 1099-R on Line 4a of the 1040 form. Then you subtract the amount that you properly and timely returned to the IRA and report the remainder – even if $0 – on Line 4b of the 1040. Write "Rollover" next to line 4b so the IRS knows why the numbers don't match.
If federal income taxes were withheld from the original distribution and reported on the 1099-R form, remember to claim the withholding on Line 25b of the 1040 or 1040-SR form.