Jimmy Pickert, CFA, CRPS® Portfolio Manager
In 2020, as part of the CARES Act COVID-19 relief bill, Congress waived the requirement to take a minimum distribution from certain retirement accounts. The waiver wasn’t enacted until March, though, and by then many investors had already taken some or all of their Required Minimum Distribution (RMD). As a result, the IRS announced that people had the later date of August 31, 2020 or 60 days after their distribution to put the money back into their account and treat the distribution and subsequent deposit as a tax-free rollover.
If you fall into the above category, your IRA will still generate a 1099-R tax form. The problem is that while it will show the distribution, it will not also show the deposit. This means that if you turn your tax documents over to your CPA and don’t inform them about the deposit, you may still end up paying tax on income that you technically returned.
Investors should be proactive in letting their CPA know if they took this step in 2020 and, if feasible, provide them with an account statement from the month in which the deposit took place.
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