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Defer Only Part of Corona IRA Distribution

msmith7305
Level 7

Client took $95K from IRA as Corona distribution.

He only wants to claim $50K as eligible for deferral and spread over 3 years.

When I read the IRS instructions for Form 8915-E it states that the FULL amount of any 1099-R Box 1 income is to be reported on the form in Part I, Line 2, Column a. Then, the Qualified distributions are to be reported on the form in Part I, Line 2, Column b.

PS does NOT fill in Column a with the total amount distributed unless you mark the 1099-R worksheet as if the entire distribution (Qualified Disaster Distribution Smart Worksheet Line B) is qualified. When doing so, both columns become $95K from my example.

If you fill in the amount of what you want to spread over 3 years ($50K in my example) in that Smart Worksheet, PS will only put $50K in column a. That is not what the instructions say to do.

Am I missing something in PS or is it not set up correctly?

Thanks in advance!

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13 Comments 13
Just-Lisa-Now-
Level 15
Level 15

On the 1099R worksheet, you can choose entire amount, or you can enter an amount....cant you just input the 50k there?    

That means in 2020 he'd pay tax on 45k + 16,667 (1/3 of the 50k), then only 16,666 in 2021 and 16,666 in 2022.

Is that not how it works out?


♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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msmith7305
Level 7

Lisa -

Yes, you can enter the $50K in the line of the Smart Worksheet, but if you do, the $50K carries to column a of the 8915-E. The IRS instructions, as I read them, requires the full distribution amount of $95K there.

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qbteachmt
Level 15

"as if the entire distribution (Qualified Disaster Distribution Smart Worksheet Line B) is qualified"

Which it Is. It's all Qualified. That eliminates the penalty.

Then, you get to handle Tax Treatment.

"He only wants to claim $50K as eligible for deferral and spread over 3 years"

Then he intends to pay a penalty on the $45k difference? Or, are we confusing Qualified as in "penalty-free disaster reason" and Deferral as in "tax treatment?"

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qbteachmt
Level 15

Did you put the "Other" Code for form 5329? Look at this form for handling the penalty.

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msmith7305
Level 7

qbteachmt -

There is no penalty as it is not an early distribution. Nothing in my question has to do with a penalty. It's all about how to fill out the form correctly. PS does not fill out the 8915-E correctly. Column a is supposed to be the TOTAL distribution reported on the 1099-R (95,000). He only wants to defer 50,000 over the 3 years. $45,000 + $16,667 to be reported in 2020.

Has nothing to do with a penalty and PS is not calculating one. No 5329 required.

Taxpayer is 64 years old.

 

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msmith7305
Level 7

See above response.

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Just-Lisa-Now-
Level 15
Level 15

The program doesnt handle it right because what youre asking to do its how its suppose to work.

A Covid distribution, you either spread it over 3 years or you dont.

Youre trying to only spread part of it, which doesnt seem to be an option.  

Was part of that 95K NOT a Covid distribution?


♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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msmith7305
Level 7

Lisa -

My understanding is, if you are a "qualified individual" (at any time of the year) which my client is, then ANY distributions taken from 1/1/20 through 12/31/20 are treated as corona related distributions.

My client was taking periodic IRA distributions from January to September of $5K/month ($45K).

In October he became a "qualified individual". Needed $50K more. Took it and did not take any more distributions.

1099-R shows full $95K. However, he only wants to defer the $50K over 3 years.

I am beginning to think it is an "all or nothing" deal.

Just-Lisa-Now-
Level 15
Level 15
I was under the impression the period was from April 1, ro Dec 31 for Covid distributions.
He may not have told the financial institution that the 50k one was for Covid, or they would have separated it out on a different 1099R maybe?

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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msmith7305
Level 7

Lisa -

Quoting from page 2 of 8915-E instructions:

"Coronavirus-related distributions.

A coronavirus-related distribution is a retirement plan distribution that was made: 1. In 2020 before December 31, 2020 and 2. To a qualified individual."

And yes, my client did inform the IRA trustee it was a coronavirus related distribution but a separate 1099-R was not provided.

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BobKamman
Level 15

I feel left out this year because all of my clients stayed healthy and employed (if not already retired) and none of them took IRA distributions because of Covid problems.  Most of them avoided taking RMD's altogether.  

But I'm wondering if this is another case of thinking we have a tax on pieces of paper, rather than a tax on income.  What if you input that single 1099 on two worksheets, $45,000 and $55,000, and didn't mark the first one as Covid-related?  Certainly, if he had IRA accounts at two places, that would work.  Will the E-Filing Police disallow it because there is some schema that prohibits two 1099-R's from the same place?  They certainly have to allow two W-2s from the same employer; it happens regularly.  

qbteachmt
Level 15

Yes, the other details sure help. It turns out none of this would be subject to penalty and your client simply wants to defer some of the taxable amount. That's a different strategy than we thought you were asking.

I agree with Bob; enter it as separate reporting. The issuer didn't have to, because they don't care about your tax treatment. But if you need that result, you need to do it the way you get the result.

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rbynaker
Level 13

@msmith7305 wrote:

Lisa -

My understanding is, if you are a "qualified individual" (at any time of the year) which my client is, then ANY distributions taken from 1/1/20 through 12/31/20 are treated as corona related distributions.

My client was taking periodic IRA distributions from January to September of $5K/month ($45K).

In October he became a "qualified individual". Needed $50K more. Took it and did not take any more distributions.

1099-R shows full $95K. However, he only wants to defer the $50K over 3 years.

I am beginning to think it is an "all or nothing" deal.


It does sound like an "all or nothing" election.  You may be able to trick the system into doing what you want it to do by creating bogus entries but I'm not finding anything in the law that permits this.

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