Posted on Friday, 5th February 2021 by

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The CARES Act allowed us to waive year-2020 required minimum distributions (RMDs) for all TSP participants who would otherwise have been subject to them. This included participants for whom 2020 would have been their first RMD year, even though that distribution would not have been due until April 1, 2021. RMDs have not been waived for 2021 however.

Gail, one of our newsletter subscribers, received a 1099-R retirement distribution form from the Thrift Savings Plan (TSP). It showed RMD taxable payments she received in 2020, even though she repaid them last July in accordance with the CARES Act guidelines. She wanted to know if the TSP would send out a corrected 1099-R; if not how will the IRS know that she doesn’t owe taxes on that amount?

In accordance with TSP guidance, she will not receive a corrected 1099-R form. If you received a required minimum distribution (RMD) from your TSP account in 2020, they must report the income and send you a Form 1099-R even if you rolled the money back into your account or into another retirement account. Not all reported income is taxable income. The TSP advises individuals to consult the IRS or a tax adviser for instructions and additional information on tax filing.

RMD recipients that received a distribution between January 1 and May 15, were allowed to roll those amounts over up until August 31, 2020. If you missed that deadline and were affected by COVID-19, see the TSP’s COVID Withdrawals and repayments for rollover options. Generally, when rolling over funds from one retirement account to another or in this case returning the funds to your TSP account, you must redeposit the money within 60 days to avoid taxes.  If you deposit it on day 61, you’ll owe whatever taxes and penalties apply. The 60-day window was extended by IRS Notice 2020-51 to August 31, 2020 due to the pandemic.

The amount of your RMD distribution will be annotated in box 1 (gross distribution) on Form 1099-R. If you returned the distribution by August 31, 2020, your withdrawal is considered to be a tax-free rollover by the IRS even if the 1099-R box 2a (taxable amount) shows the returned distribution. Basically, Form 1099-R indicates the receipt of a retirement account distribution and doesn’t necessarily mean that it is taxable because the person receiving the distribution may have the option to roll it over to an IRA.

Provide your accountant with a copy of your 1099-R and TSP statement showing the redeposited RMD. They will reconcile the withdrawals with any 1099-R, 5498 Forms, and 1040 filings. If you use Turbo Tax or another tax preparation program keep a copy of these documents with your files.

Note: The IRS announced that the nation’s tax season will start on Friday, February 12, 2021, when the tax agency will begin accepting and processing 2020 tax year returns. The February 12 start date for individual tax return filers allows the IRS time to do additional programming, and testing of IRS systems following the December 27 tax law changes that provided a second round of Economic Impact Payments and other benefits.

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