How to Correct RMD to ROTH Rollover

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patrickscott
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How to Correct RMD to ROTH Rollover

Post by patrickscott » Tue Sep 17, 2019 8:33 am

Greetings,

I just realized that for Tax Year 2018, I incorrectly rolled over my (full/total) RMD to Roth.

How do I correct my error?

Background facts:

My RMD for 2018 was $11,000.00

On 11/5/2018 I converted / rolled over $45,000 from my IRA to my Roth.

Vanguard posted the following message: "Congratulations! You've satisfied your RMD for your Vanguard accounts this year."

Reading that, I assumed incorrectly that I had met my RMD for the year.

I now realize that from the IRA distribution of $45,000, I should have converted /roll over only $34,000, and invested the $11,000 in a not-tax preferred account, such as my regular VBIAX or VTSAX.

I read on various web sites that I have until October 15 of this year (2019) to correct my mistake.

Questions:

How do I correct my mistake?

Do I call Vanguard and ask them to compute and take out the excess $11,000 and any earnings from my Roth VTSAX and put those funds back into my Traditional IRA VTSAX account?

Do I have to file an amended tax return?

Will Vanguard issue any corrected notices to the IRS and me?

If this has already been answered somewhere, I apologize; I could not find it. (I found many posts about Backdoor, etc. but not the exact steps to take to correct an incorrect RMD to ROTH roll-over.)

As always, a BIG THANK YOU!

retiredjg
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Re: How to Correct RMD to ROTH Rollover

Post by retiredjg » Tue Sep 17, 2019 8:55 am

I do not know the right answer.

If I found myself in this position and did not find some trustworthy advice, I'd simply treat it as an RMD not taken. And go through the steps to fix that (take the RMD now) and ask for a waiver (fill out the form).

https://www.kiplinger.com/article/retir ... -rmds.html

https://www.kitces.com/blog/fix-rmd-mis ... 9-penalty/


I hope someone who actually knows the right answer will see this thread. :D


Yep. Looks like this was definitely the wrong answer! :oops:
Last edited by retiredjg on Tue Sep 17, 2019 9:12 am, edited 1 time in total.

kaneohe
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Re: How to Correct RMD to ROTH Rollover

Post by kaneohe » Tue Sep 17, 2019 9:06 am

here's a similar post from irahelp.com & response by Alan S. who posts here
https://www.irahelp.com/forum-post/2650 ... ersion-rmd

Sounds like the first amounts out are considered the RMD so you have taken the RMD. However the RMD cannot be converted to Roth so
you have an excess contribution that must be removed w/ associated earnings. The length of the thread suggests that the tax reporting correction may be a bit messy.

Topic Author
patrickscott
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Re: How to Correct RMD to ROTH Rollover

Post by patrickscott » Tue Sep 17, 2019 11:22 am

Thanks for your replies.

At this time Vanguard is removing the RMD and earnings from Roth and putting the funds in my Money Market.

Tomorrow --in a rush right now to get out the door-- I will be able to give an update as to my next steps.

Thanks again.

Topic Author
patrickscott
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Re: How to Correct RMD to ROTH Rollover

Post by patrickscott » Wed Sep 18, 2019 7:08 am

retiredjg wrote:
Tue Sep 17, 2019 8:55 am



I hope someone who actually knows the right answer will see this thread. :D
Thanks!

Like you said, I hope that someone who actually knows the right answer [somebody that has actually corrected a similar mistake,] answers this thread.

I am still reading everything I can find... One suggestion I was given was to complete Form 5239, but Form 8606 seems like the way to go.

Still reading...
Last edited by patrickscott on Wed Sep 18, 2019 10:52 am, edited 1 time in total.

retiredjg
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Re: How to Correct RMD to ROTH Rollover

Post by retiredjg » Wed Sep 18, 2019 7:25 am

After reading Alan's comments in the ira.help thread, that makes a lot more sense than what I had originally thought.

I'd be doing exactly what he said in the early part of that link (I didn't read the last parts) and hope to get the taxes done right.

Good luck! And let us know how this turns out?

Topic Author
patrickscott
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Re: How to Correct RMD to ROTH Rollover

Post by patrickscott » Wed Sep 18, 2019 10:50 am

retiredjg wrote:
Wed Sep 18, 2019 7:25 am
After reading Alan's comments in the ira.help thread, that makes a lot more sense than what I had originally thought.

I'd be doing exactly what he said in the early part of that link (I didn't read the last parts) and hope to get the taxes done right.

Good luck! And let us know how this turns out?
I agree that Alan's link seems to offer the most logical solution, i.e., using FORM 8606.

I am still reading and rereading Alan's link (ROTH CONVERSION BEFORE RMD by Ed Slott) --Thanks Alan-- and will post what what I plan on doing before I do it.

At this time, I am still waiting for the RMD (in ROTH) earnings to be transferred back to my Money Market account -- I have just been notified that it will take 2 or 3 business days for the RMD (in ROTH) earnings to be transferred back to my Money Market account.

Thanks to all!
Last edited by patrickscott on Wed Sep 18, 2019 11:42 am, edited 1 time in total.

Alan S.
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Re: How to Correct RMD to ROTH Rollover

Post by Alan S. » Wed Sep 18, 2019 10:55 am

Sounds like the IRA corrective distribution is in process at Vanguard.

Since the excess contribution (in the amount of the RMD for 2018) was made in 2018, the earnings distributed by Vanguard will be taxable in 2018. So if you have filed 2018, it will have to be amended to report the amount of earnings distributed. In January, VG will issue a 1099R reporting the return of an excess contribution for 2018 (Denoted by Code P on the 1099 R box 7).

The amended return should only report the allowable conversion on Form 8606 (34,000) since the 11,000 was not eligible for conversion. But the 11,000 will still be taxable as an RMD distribution, as well as the earnings returned as shown on the 1099R coded P. An explanatory statement should be included as follows:

"On 11/5/2018 I executed a conversion of 45,000 that included my RMD of 11,000 in error. Therefore, in Sept, 2019 I had VG return the 11,000 from my Roth IRA along with applicable earnings of $xxxx, and all taxable amounts are included in this amended return."

None of this will have to be reported on your 2019 tax return because your amended return and explanation for 2018 included everything that you needed to report.

I am assuming that you do not have any other TIRA accounts, or the situation and reporting could change. Please advise if you have any other such accounts and their 2018 RMD status. I also have assumed that you filed your 2018 return by 4/15/2019 or an extension by that date.

Topic Author
patrickscott
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Re: How to Correct RMD to ROTH Rollover

Post by patrickscott » Wed Sep 18, 2019 11:58 am

Alan S. wrote:
Wed Sep 18, 2019 10:55 am
Sounds like the IRA corrective distribution is in process at Vanguard.

Since the excess contribution (in the amount of the RMD for 2018) was made in 2018, the earnings distributed by Vanguard will be taxable in 2018. So if you have filed 2018, it will have to be amended to report the amount of earnings distributed. In January, VG will issue a 1099R reporting the return of an excess contribution for 2018 (Denoted by Code P on the 1099 R box 7).

The amended return should only report the allowable conversion on Form 8606 (34,000) since the 11,000 was not eligible for conversion. But the 11,000 will still be taxable as an RMD distribution, as well as the earnings returned as shown on the 1099R coded P. An explanatory statement should be included as follows:

"On 11/5/2018 I executed a conversion of 45,000 that included my RMD of 11,000 in error. Therefore, in Sept, 2019 I had VG return the 11,000 from my Roth IRA along with applicable earnings of $xxxx, and all taxable amounts are included in this amended return."

None of this will have to be reported on your 2019 tax return because your amended return and explanation for 2018 included everything that you needed to report.

I am assuming that you do not have any other TIRA accounts, or the situation and reporting could change. Please advise if you have any other such accounts and their 2018 RMD status. I also have assumed that you filed your 2018 return by 4/15/2019 or an extension by that date.
Thank you Alan for such a clear, detailed reply and for the suggested language.

The 2018 RMD (incorrectly transferred to ROTH) amount has already been transferred/placed into my Money Market account.I have just been notified that it will take 2 or 3 business days for the RMD (in ROTH) earnings to be transferred back to my Money Market account.

To answer your questions:

(1) I do have another small TIRA account, with an RMD of about $2,400. That RMD is computed separately by the custodian of that account and has been taken out/sent to my bank account automatically on a monthly basis. No conversion was made of those funds; they simply went into my checking account.

(2) I filed my 2018 tax return well before the 4/15/2019 deadline.

As soon as my RMD earnings are posted in my Money Market account, I will start on my paperwork.

Thanks again for all your help -- you are amazing!

Topic Author
patrickscott
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Re: How to Correct RMD to ROTH Rollover

Post by patrickscott » Thu Sep 19, 2019 10:39 am

Alan S. wrote:
Wed Sep 18, 2019 10:55 am
Since the excess contribution (in the amount of the RMD for 2018) was made in 2018, the earnings distributed by Vanguard will be taxable in 2018. So if you have filed 2018, it will have to be amended to report the amount of earnings distributed.
Greetings again, Alan and any and all readers, :happy

Vanguard, at this time is transferring from my ROTH to my Money Market account,
(1) the original RMD amount and
(2) all RMD amount related earnings from the time of transfer (from IRA to ROTH) from 11/05/2018 through 09/17/2019. By Monday or Tuesday, I will know the exact amount of earnings from 11/05/2018 through 09/17/2019.

It just occurred to me that, in addition to the above, in order to file my 2018 Amended Return, I need to find out (and ask Vanguard for) the amount of RMD related earnings from 11/05/2018 through 12/31/2018.

In looking at my account, it looks like I had a loss (of the excess ROTH contributions) for that period of time since there was just a small income dividend on 12/21 and the share prices were as follows:

On 11/05/2018, at the time of original transfer, my IRA/ROTH (both identical) share price was $68.24.

On 12/31/2018, my IRA/ROTH (both identical) share price was $62.09.

Am I correct in thinking that to file my 2018 Amended Return, I will need, in addition to Form 8606, to report the amount of profit/loss on the RMD to ROTH amount related earnings through 12/31/2018... or am I making it too complicated? I presume that amount is to be reported as an ordinary dividend.

I presume that in early 2020 Vanguard will also issue a corrected (1) 1099-DIV for the 2018 gain/loss and (2) a 1099R r for 2018.

Thanks again for all your help!

retiredjg
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Re: How to Correct RMD to ROTH Rollover

Post by retiredjg » Fri Sep 20, 2019 9:36 am

patrickscott wrote:
Wed Sep 18, 2019 11:58 am
(1) I do have another small TIRA account, with an RMD of about $2,400.
Do you have any "basis" in any tIRA? Basis would be money that has already been taxed - such as from a non-deductible contribution.

retiredjg
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Re: How to Correct RMD to ROTH Rollover

Post by retiredjg » Fri Sep 20, 2019 9:39 am

patrickscott wrote:
Thu Sep 19, 2019 10:39 am
Am I correct in thinking that to file my 2018 Amended Return, I will need, in addition to Form 8606, to report the amount of profit/loss on the RMD to ROTH amount related earnings through 12/31/2018... or am I making it too complicated? I presume that amount is to be reported as an ordinary dividend.
I don't think so. The way I read Alan's post is that all the earnings are taxable on your 2018 return, even the earnings that actually occurred in 2019.

Topic Author
patrickscott
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Re: How to Correct RMD to ROTH Rollover

Post by patrickscott » Fri Sep 20, 2019 10:25 am

retiredjg wrote:
Fri Sep 20, 2019 9:36 am
patrickscott wrote:
Wed Sep 18, 2019 11:58 am
(1) I do have another small TIRA account, with an RMD of about $2,400.
Do you have any "basis" in any tIRA? Basis would be money that has already been taxed - such as from a non-deductible contribution.
Thanks for your reply.

I have no basis. The funds were not taxed previously.
Last edited by patrickscott on Fri Sep 20, 2019 11:13 am, edited 1 time in total.

Topic Author
patrickscott
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Re: How to Correct RMD to ROTH Rollover

Post by patrickscott » Fri Sep 20, 2019 10:29 am

retiredjg wrote:
Fri Sep 20, 2019 9:39 am
patrickscott wrote:
Thu Sep 19, 2019 10:39 am
Am I correct in thinking that to file my 2018 Amended Return, I will need, in addition to Form 8606, to report the amount of profit/loss on the RMD to ROTH amount related earnings through 12/31/2018... or am I making it too complicated? I presume that amount is to be reported as an ordinary dividend.
I don't think so. The way I read Alan's post is that all the earnings are taxable on your 2018 return, even the earnings that actually occurred in 2019.
I think you are reading it correctly... I had read Alan's post without fully understanding that ALL earnings generated in 2018 AND 2019 are taxable in 2018 :( .

I now understand that my 2019 earnings (from my 2018 RMD being in my ROTH :oops: ) are taxable in 2018.

Fortunately, even if all the earnings (2018 and 2019) are taxed in 2018, it look like I will only owe a little less than $200 - if there are no penalties.

Thank you for your reply.

retiredjg
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Re: How to Correct RMD to ROTH Rollover

Post by retiredjg » Sat Sep 21, 2019 12:41 pm

patrickscott wrote:
Fri Sep 20, 2019 10:29 am
Fortunately, even if all the earnings (2018 and 2019) are taxed in 2018, it look like I will only owe a little less than $200 - if there are no penalties.
I understand the IRS is generous when issuing the penalty waivers. They just want you to get it fixed. I would assume you should file the waiver form but Alan didn't mention that so I'm not real sure.

Alan S.
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Re: How to Correct RMD to ROTH Rollover

Post by Alan S. » Sat Sep 21, 2019 2:42 pm

There will not be penalties of any kind:

1) No RMD failure because your RMD was distributed from your TIRA in 2018. Even though you converted it, the RMD is still deemed distributed.
2) No 6% excise tax on excess Roth contributions because you removed the excess with earnings by 10/15. The code on the 1099R for this removal will verify that. as will your explanatory statement.
3) No 10% early withdrawal penalty on the earnings distributed (taxable in 2018) since you are over 59.5.

Therefore, no 5329 is needed and no penalty waiver request needed.

Topic Author
patrickscott
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Re: How to Correct RMD to ROTH Rollover

Post by patrickscott » Sat Sep 21, 2019 4:34 pm

Alan S. wrote:
Sat Sep 21, 2019 2:42 pm
There will not be penalties of any kind:

1) No RMD failure because your RMD was distributed from your TIRA in 2018. Even though you converted it, the RMD is still deemed distributed.
2) No 6% excise tax on excess Roth contributions because you removed the excess with earnings by 10/15. The code on the 1099R for this removal will verify that. as will your explanatory statement.
3) No 10% early withdrawal penalty on the earnings distributed (taxable in 2018) since you are over 59.5.

Therefore, no 5329 is needed and no penalty waiver request needed.
Thanks again, Alan for clarifying those additional issues. I am very glad to hear that there will be no 6% excise tax on excess Roth contributions and no 10% early withdrawal penalty. I really appreciate the clarity of your replies.

Topic Author
patrickscott
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Re: How to Correct RMD to ROTH Rollover

Post by patrickscott » Wed Sep 25, 2019 8:56 pm

Alan S. wrote:
Wed Sep 18, 2019 10:55 am

The amended return should only report the allowable conversion on Form 8606 (34,000) since the 11,000 was not eligible for conversion. But the 11,000 will still be taxable as an RMD distribution, as well as the earnings returned as shown on the 1099R coded P. An explanatory statement should be included as follows:

"On 11/5/2018 I executed a conversion of 45,000 that included my RMD of 11,000 in error. Therefore, in Sept, 2019 I had VG return the 11,000 from my Roth IRA along with applicable earnings of $xxxx, and all taxable amounts are included in this amended return."
Greetings,

The older I get, now 73, the less certain I am that I am doing my paperwork correctly :confused --but I keep on trying. :happy

Vanguard took longer than expected --about a week-- to return the applicable earnings from my ROTH to my MM account. Now that I have all the needed information, this is what I did -- correctly?-- using the H&R Block software:

1) On the 1099-R page I left Gross Distribution of $45,000. On the "Did you convert your entire distribution," I changed that from yes to no. On the next page I showed, as amount that I should have converted, the $34,000. My Form 8606 is now showing the $34,000.

2) On the 'Dividend or Distribution Information' page for Prime Money Market, I manually added to the already existing $20, the returned applicable earning of $1,500 for a total of $1,520.

If I should not have entered/added the $1,500 as an ordinary dividend in the Prime Money Market field, where should I have entered it?

Thanks again for all your help.

And Thanks for the suggested language. I used it with some minor modifications.

Triple-Nickels
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Re: How to Correct RMD to ROTH Rollover

Post by Triple-Nickels » Wed Sep 25, 2019 9:35 pm

Alan S. wrote:
Sat Sep 21, 2019 2:42 pm
There will not be penalties of any kind:

1) No RMD failure because your RMD was distributed from your TIRA in 2018. Even though you converted it, the RMD is still deemed distributed.
2) No 6% excise tax on excess Roth contributions because you removed the excess with earnings by 10/15. The code on the 1099R for this removal will verify that. as will your explanatory statement.
3) No 10% early withdrawal penalty on the earnings distributed (taxable in 2018) since you are over 59.5.

Therefore, no 5329 is needed and no penalty waiver request needed.
Hi Alan (or anyone else who wants to respond),
Not trying to hijack this thread, but I wanted to ask you a question since I'm in a pretty similar situation as OP, except I'm not 59.5 yet and my ROTH IRA hasn't passed the 5 year maturity mark. Please let me know if I need to start a brand new thread to get my question(s) answered. Thanks

I processed a ROTH distribution online with Fidelity today for tax year 2018, for the amount of my "ineligible" conversion (after tax contribution + earnings). Fidelity calculated the earnings on my ineligible amount and will add that to my distribution. The excess after tax contributions + earnings was from 2018, and I filed my 2018 tax return in April 2018. Since I processed the ineligible ROTH distribution today, Fidelity told me I shouldn't get hit with the 6% penalty, but I will have to pay the 10% early withdrawal penalty on the earnings of my ineligible amount. I asked Fidelity if I should file an amended 2018 tax return now/before Oct 15 to show today's ROTH distribution, and the FIDO rep told me that I would get the corrected 1099-R (coded as a "return of contribution") and it should be included in my 2019 tax return, as they will send me the 1099-R in January 2020. FIDO rep also told me I DON'T need to file a 2018 amended return. He said use form 8606 matched with the 1099-R and I should be OK.

HELP??? Does what FIDO told me today sound correct? I don't need to file an amended 2018 return?

Thanks in advance for your help.
Triple-Nickels

Triple-Nickels
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Re: How to Correct RMD to ROTH Rollover

Post by Triple-Nickels » Wed Sep 25, 2019 9:49 pm

patrickscott wrote:
Wed Sep 25, 2019 8:56 pm
Alan S. wrote:
Wed Sep 18, 2019 10:55 am

The amended return should only report the allowable conversion on Form 8606 (34,000) since the 11,000 was not eligible for conversion. But the 11,000 will still be taxable as an RMD distribution, as well as the earnings returned as shown on the 1099R coded P. An explanatory statement should be included as follows:

"On 11/5/2018 I executed a conversion of 45,000 that included my RMD of 11,000 in error. Therefore, in Sept, 2019 I had VG return the 11,000 from my Roth IRA along with applicable earnings of $xxxx, and all taxable amounts are included in this amended return."
Greetings,

The older I get, now 73, the less certain I am that I am doing my paperwork correctly :confused --but I keep on trying. :happy

Vanguard took longer than expected --about a week-- to return the applicable earnings from my ROTH to my MM account. Now that I have all the needed information, this is what I did -- correctly?-- using the H&R Block software:

1) On the 1099-R page I left Gross Distribution of $45,000. On the "Did you convert your entire distribution," I changed that from yes to no. On the next page I showed, as amount that I should have converted, the $34,000. My Form 8606 is now showing the $34,000.

2) On the 'Dividend or Distribution Information' page for Prime Money Market, I manually added to the already existing $20, the returned applicable earning of $1,500 for a total of $1,520.

If I should not have entered/added the $1,500 as an ordinary dividend in the Prime Money Market field, where should I have entered it?

Thanks again for all your help.

And Thanks for the suggested language. I used it with some minor modifications.
OP:
I'm trying to resolve my own situation that's fairly similar to yours, so I have a question for you re: the 2018 amended tax return that you're preparing now. Did you get a corrected 2018 1099-R from VG already? If you didn't get a 1099-R associated with this transaction that you're doing, then how can you be filing an amended 2018 tax return already? Did your VG rep tell you that you'd get your 1099-R now, or in early 2019 (this should read 2020), esp since you have some earnings in 2019 associated with the error?

Topic Author
patrickscott
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Re: How to Correct RMD to ROTH Rollover

Post by patrickscott » Thu Sep 26, 2019 5:35 am

Triple-Nickels wrote:
Wed Sep 25, 2019 9:49 pm


OP:
I'm trying to resolve my own situation that's fairly similar to yours, so I have a question for you re: the 2018 amended tax return that you're preparing now. Did you get a corrected 2018 1099-R from VG already? If you didn't get a 1099-R associated with this transaction that you're doing, then how can you be filing an amended 2018 tax return already? Did your VG rep tell you that you'd get your 1099-R now, or in early 2019 (this should read 2020), esp since you have some earnings in 2019 associated with the error?
Greetings,

Let me preface my response by stating that I am no expert in this matter and that others probably have better answers.

1) I did not get a corrected 2018 1099-R from Vanguard. I asked Vanguard about it and was told that I would receive it in early 2020.

2) Based on what has been posted by Alan in this thread, I have to, in order to avoid penalties & interest charges, submit my amended return by 10/15/2019.

As supporting evidence --which may be overkill -- for my 2018 Amended Return, I am enclosing
(a) a copy of the Vanguard secure message stating the amount of the 2018 RMD (to be placed in my Money Market account) and associated earnings for 2018 AND 2019 (to be placed in my Money Market account). The RMD associated earnings are calculated by Vanguard from the time in 11/xx/2018 that I transferred/distributed the RMD into ROTH to the time Vanguard received my request, on 09/17/2019, to transfer the RMD and associated earnings from ROTH to my MM account.

(b) I am also enclosing, now that both the RMD and the associated earnings for 2018 AND 2019 have been placed in my MM account, a copy of my MM transactions.

I will also enclose a check for the additional taxes due on the RMD associated earnings for 2018 AND 2019. Any earnings earned as a result of my 2018 RMD (being placed in my ROTH account) for 2018 AND 2019 are taxable as if all earned in 2018.

3) The additional taxes are minimal --below $200-- since (a) I had already paid, when I filed my 2018 tax return, the taxes on the IRA $45,000 distribution to ROTH (which included both the RMD and the ROTH contributions) and (b) the taxes due are only on the 2018 RMD associated earnings for 2018 AND 2019.

At this time, my main concern, particularly since we have, in two days, an upcoming trip to visit relatives (which may extend beyond the 10/15 deadline), is to get the 2018 Amended Return and check to the IRS today or tomorrow at the latest. If the IRS needs any additional information, I will gladly provide it when requested. In the past, when I have made a mistake, I have found the IRS to be most reasonable and helpful.

Let me know if you have any additional questions.

---- By the way, if anybody thinks that the supporting information shown in items (a) and (b) is unnecessary, please let me know. Thanks.

Alan S.
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Re: How to Correct RMD to ROTH Rollover

Post by Alan S. » Thu Sep 26, 2019 10:45 am

patrickscott wrote:
Thu Sep 26, 2019 5:35 am
Triple-Nickels wrote:
Wed Sep 25, 2019 9:49 pm


OP:
I'm trying to resolve my own situation that's fairly similar to yours, so I have a question for you re: the 2018 amended tax return that you're preparing now. Did you get a corrected 2018 1099-R from VG already? If you didn't get a 1099-R associated with this transaction that you're doing, then how can you be filing an amended 2018 tax return already? Did your VG rep tell you that you'd get your 1099-R now, or in early 2019 (this should read 2020), esp since you have some earnings in 2019 associated with the error?
Greetings,

Let me preface my response by stating that I am no expert in this matter and that others probably have better answers.

1) I did not get a corrected 2018 1099-R from Vanguard. I asked Vanguard about it and was told that I would receive it in early 2020.

Yes, by the end of January you will get the 1099R reporting the distribution of the excess contribution. It will be coded P, which confirms that the earnings shown in Box 2a are taxable in 2018.

2) Based on what has been posted by Alan in this thread, I have to, in order to avoid penalties & interest charges, submit my amended return by 10/15/2019.

No, you must have completed the corrective distribution by 10/15, but the 1040X has no specific deadline. I would aim to submit it before year end and the start of the 2020 filing season. Note that you should write " filed pursuant to section 301.9100-2" on the 1040X. This effectively tells the IRS that you completed the return of the excess by the extended due date of 10/15.

As supporting evidence --which may be overkill -- for my 2018 Amended Return, I am enclosing
(a) a copy of the Vanguard secure message stating the amount of the 2018 RMD (to be placed in my Money Market account) and associated earnings for 2018 AND 2019 (to be placed in my Money Market account). The RMD associated earnings are calculated by Vanguard from the time in 11/xx/2018 that I transferred/distributed the RMD into ROTH to the time Vanguard received my request, on 09/17/2019, to transfer the RMD and associated earnings from ROTH to my MM account.

Yes, this is overkill, and two other statements are needed. The IRS does not care WHERE the return went, just that the distribution was done in time. The 'Filed pursuant" wording indicated above tells them that, and they will get confirmation when they receive their copy of the 1099R in January. However, you SHOULD state that the corrective distribution was done because you converted your RMD in error, and that created the excess contribution. There is a box on the 1040X to include those two statements.

(b) I am also enclosing, now that both the RMD and the associated earnings for 2018 AND 2019 have been placed in my MM account, a copy of my MM transactions.

This is not necessary. The IRS does not care about where the money went, just that the excess was withdrawn.

I will also enclose a check for the additional taxes due on the RMD associated earnings for 2018 AND 2019. Any earnings earned as a result of my 2018 RMD (being placed in my ROTH account) for 2018 AND 2019 are taxable as if all earned in 2018.

Good.

3) The additional taxes are minimal --below $200-- since (a) I had already paid, when I filed my 2018 tax return, the taxes on the IRA $45,000 distribution to ROTH (which included both the RMD and the ROTH contributions) and (b) the taxes due are only on the 2018 RMD associated earnings for 2018 AND 2019.

Yes.

At this time, my main concern, particularly since we have, in two days, an upcoming trip to visit relatives (which may extend beyond the 10/15 deadline), is to get the 2018 Amended Return and check to the IRS today or tomorrow at the latest. If the IRS needs any additional information, I will gladly provide it when requested. In the past, when I have made a mistake, I have found the IRS to be most reasonable and helpful.

Let me know if you have any additional questions.

As indicated above, you have more time to get the 1040X filed. This form can be somewhat confusing if you are not used to completing them.

---- By the way, if anybody thinks that the supporting information shown in items (a) and (b) is unnecessary, please let me know. Thanks.

Topic Author
patrickscott
Posts: 64
Joined: Thu Feb 01, 2018 8:53 am

Re: How to Correct RMD to ROTH Rollover

Post by patrickscott » Thu Sep 26, 2019 2:22 pm

Alan S. wrote:
Thu Sep 26, 2019 10:45 am
patrickscott wrote:
Thu Sep 26, 2019 5:35 am
Triple-Nickels wrote:
Wed Sep 25, 2019 9:49 pm


OP:
I'm trying to resolve my own situation that's fairly similar to yours, so I have a question for you re: the 2018 amended tax return that you're preparing now. Did you get a corrected 2018 1099-R from VG already? If you didn't get a 1099-R associated with this transaction that you're doing, then how can you be filing an amended 2018 tax return already? Did your VG rep tell you that you'd get your 1099-R now, or in early 2019 (this should read 2020), esp since you have some earnings in 2019 associated with the error?
Greetings,

Let me preface my response by stating that I am no expert in this matter and that others probably have better answers.

1) I did not get a corrected 2018 1099-R from Vanguard. I asked Vanguard about it and was told that I would receive it in early 2020.

Yes, by the end of January you will get the 1099R reporting the distribution of the excess contribution. It will be coded P, which confirms that the earnings shown in Box 2a are taxable in 2018.

2) Based on what has been posted by Alan in this thread, I have to, in order to avoid penalties & interest charges, submit my amended return by 10/15/2019.

No, you must have completed the corrective distribution by 10/15, but the 1040X has no specific deadline. I would aim to submit it before year end and the start of the 2020 filing season. Note that you should write " filed pursuant to section 301.9100-2" on the 1040X. This effectively tells the IRS that you completed the return of the excess by the extended due date of 10/15.

As supporting evidence --which may be overkill -- for my 2018 Amended Return, I am enclosing
(a) a copy of the Vanguard secure message stating the amount of the 2018 RMD (to be placed in my Money Market account) and associated earnings for 2018 AND 2019 (to be placed in my Money Market account). The RMD associated earnings are calculated by Vanguard from the time in 11/xx/2018 that I transferred/distributed the RMD into ROTH to the time Vanguard received my request, on 09/17/2019, to transfer the RMD and associated earnings from ROTH to my MM account.

Yes, this is overkill, and two other statements are needed. The IRS does not care WHERE the return went, just that the distribution was done in time. The 'Filed pursuant" wording indicated above tells them that, and they will get confirmation when they receive their copy of the 1099R in January. However, you SHOULD state that the corrective distribution was done because you converted your RMD in error, and that created the excess contribution. There is a box on the 1040X to include those two statements.

(b) I am also enclosing, now that both the RMD and the associated earnings for 2018 AND 2019 have been placed in my MM account, a copy of my MM transactions.

This is not necessary. The IRS does not care about where the money went, just that the excess was withdrawn.

I will also enclose a check for the additional taxes due on the RMD associated earnings for 2018 AND 2019. Any earnings earned as a result of my 2018 RMD (being placed in my ROTH account) for 2018 AND 2019 are taxable as if all earned in 2018.

Good.

3) The additional taxes are minimal --below $200-- since (a) I had already paid, when I filed my 2018 tax return, the taxes on the IRA $45,000 distribution to ROTH (which included both the RMD and the ROTH contributions) and (b) the taxes due are only on the 2018 RMD associated earnings for 2018 AND 2019.

Yes.

At this time, my main concern, particularly since we have, in two days, an upcoming trip to visit relatives (which may extend beyond the 10/15 deadline), is to get the 2018 Amended Return and check to the IRS today or tomorrow at the latest. If the IRS needs any additional information, I will gladly provide it when requested. In the past, when I have made a mistake, I have found the IRS to be most reasonable and helpful.

Let me know if you have any additional questions.

As indicated above, you have more time to get the 1040X filed. This form can be somewhat confusing if you are not used to completing them.

---- By the way, if anybody thinks that the supporting information shown in items (a) and (b) is unnecessary, please let me know. Thanks.
Very Glad to hear that the 1040X has no specific deadline.

Also glad to hear that I do not have to enclose the Vanguard documentation.

As suggested, I will modify the 1040X 'Explanation of Changes' language to include "filed pursuant to section 301.9100-2" and the two additional statements.

Alan, your help is invaluable. Thanks again.

--Update: My 2018 Amended Return has been revised, completed and mailed. What a relief! :sharebeer

Thanks again, in particular, to Alan, and also to all who offered assistance.

Topic Author
patrickscott
Posts: 64
Joined: Thu Feb 01, 2018 8:53 am

Re: How to Correct RMD to ROTH Rollover

Post by patrickscott » Fri Nov 15, 2019 7:05 pm

Just a brief update:

Today, Nov 11, 2019, I received a notice from the IRS that my 2018 Amended Return and payment were accepted. :D

"As a result you don't owe us any money, nor are you due a refund."

Thanks again, Alan. Your help is greatly appreciated. :beer

Have a wonderful Holiday Season.

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