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CRD Repayment of RMD paid in Stock-2020


ERISAGal
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If a participant took an RMD in 2020 as a stock distribution and was determined to meet the CRD requirements, can that repayment during the 3 year window be made in the form of stock or does it have to be at the cash value of the stock on the date it was distributed.

Thanks for your help with this!

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If the plan allowed in-kind rollovers I expect the person could re-contribute back the shares, but depending on the current value when rolled back, they might not be able to redeposit all the shares (if value had increased) or avoid taxation (if value had decreased) because I think you have to consider the FMV as of each event - distribution and repayment. And if these were ER securities for which the net unrealized appreciation was being further deferred, that muddies the situation further.

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services

kprell@bpas.com

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ERISAGal, under 402(c)(1)(C), if you still have the property you can roll all of it back to an eligible retirement plan. But it has to be "the property," i.e. not shares that you repurchase after you sold the distributed shares. That's the general rule. CARES Act 2202 however refers to rolling back "an amount" not in excess of amount distributed, so CuseFan has a point. I don't know what Congress intended, or whether Congress knew what it intended. Since 2202 does not say "dollar amount," IRS should have leeway to interpret it favorably where participant takes the stock just in case, does not sell it, and then wants to roll back that stock. But again, seems unclear under the CARES Act wording, to me at least.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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6 minutes ago, Luke Bailey said:

ERISAGal and CuseFan, under 402(c)(1)(C), if you still have the property you should be able to roll all of it back to an eligible retirement plan. That's the general rule and I don't think CARES 2202 changes it.

Luke , you would still be limited to value at distribution though, right?  If I distribute 1,000 shares at $70/share today, I cannot contribute 1,000 shares at $100/share next week.

 

 

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30 minutes ago, RatherBeGolfing said:

Luke , you would still be limited to value at distribution though, right?  If I distribute 1,000 shares at $70/share today, I cannot contribute 1,000 shares at $100/share next week.

RBG, under 402(c)(1)(C), if you roll over the actual 1,000 shares that you received (not replacement shares that are otherwise identical, but the same shares), you can roll them all back, regardless of value at the time of rollover. Of course, in the normal instance this is going to be either a direct rollover or a 60-day rollover, so the potential for a price-swing is not going to be as big a deal as it is with a CRD, where you have 3 years, but I don't see why the general rule would not be operable for a CRD. In fact, having looked at this a little more, I think my reticence in earlier response based on 2202's use of "amount" was misplaced, because 402(c)(1)(C) refers to "the amount so transferred['s] consist[ing] of the property distributed," thus confirming that "amount" as used in 2202 probably should not be thought of as just a dollar amount. Of course, this is an unlikely scenario. You have to imagine the COVID-affected participant sort of taking the in-kind distribution "just in case," not doing anything with the property (i.e., not selling it), and then deciding to roll it back  to a plan (or more likely, IRA). In the interim, there may be dividends, and I'm not sure there is any guidance on that. Again, less of a problem with 60-days as maximum rollover period.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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13 hours ago, Luke Bailey said:

RBG, under 402(c)(1)(C), if you roll over the actual 1,000 shares that you received (not replacement shares that are otherwise identical, but the same shares), you can roll them all back, regardless of value at the time of rollover. Of course, in the normal instance this is going to be either a direct rollover or a 60-day rollover, so the potential for a price-swing is not going to be as big a deal as it is with a CRD, where you have 3 years, but I don't see why the general rule would not be operable for a CRD. In fact, having looked at this a little more, I think my reticence in earlier response based on 2202's use of "amount" was misplaced, because 402(c)(1)(C) refers to "the amount so transferred['s] consist[ing] of the property distributed," thus confirming that "amount" as used in 2202 probably should not be thought of as just a dollar amount. Of course, this is an unlikely scenario. You have to imagine the COVID-affected participant sort of taking the in-kind distribution "just in case," not doing anything with the property (i.e., not selling it), and then deciding to roll it back  to a plan (or more likely, IRA). In the interim, there may be dividends, and I'm not sure there is any guidance on that. Again, less of a problem with 60-days as maximum rollover period.

Thanks Luke.  I'm still not sure how you square it with the requirements under CARES, and the special advantages it provides.  

For example, as a qualified individual, I take a distribution of 1,000 shares of Stock A at $70 per share.  Stock A has taken significant losses during the first couple of months of Covid lockdowns.  I get a 1099-R for $70,000 which is less than the $100,000 aggregate limit under CARES. In 2022, Stock A has benefited from global recovery efforts and has bounced back to $105 per share.  I never sold the stock, and would now like to take advantage of the repayment provision in CARES, so I contribute the identical 1,000 shares to my IRA.  The value of the shares at contribution is $105,000, which exceeds both the general aggregate dollar limitation of $100,000, and the requirement that "1 or more contributions in an aggregate amount not to exceed the amount of such distribution". 2202(a)(3)(A)

I know you are arguing that "amount" should not be limited to just a dollar amount, but for tax purposes a dollar amount has to be assigned to both distribution and contribution, no?  You need to get a 1099 for the distribution, and any amount included in year 1 and 2 would be credited when repaid in year 3.  I guess Im still struggling with applying the general rule to the requirements in CARES.  

 

 

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3 hours ago, RatherBeGolfing said:

Thanks Luke.  I'm still not sure how you square it with the requirements under CARES, and the special advantages it provides.  

For example, as a qualified individual, I take a distribution of 1,000 shares of Stock A at $70 per share.  Stock A has taken significant losses during the first couple of months of Covid lockdowns.  I get a 1099-R for $70,000 which is less than the $100,000 aggregate limit under CARES. In 2022, Stock A has benefited from global recovery efforts and has bounced back to $105 per share.  I never sold the stock, and would now like to take advantage of the repayment provision in CARES, so I contribute the identical 1,000 shares to my IRA.  The value of the shares at contribution is $105,000, which exceeds both the general aggregate dollar limitation of $100,000, and the requirement that "1 or more contributions in an aggregate amount not to exceed the amount of such distribution". 2202(a)(3)(A)

I know you are arguing that "amount" should not be limited to just a dollar amount, but for tax purposes a dollar amount has to be assigned to both distribution and contribution, no?  You need to get a 1099 for the distribution, and any amount included in year 1 and 2 would be credited when repaid in year 3.  I guess Im still struggling with applying the general rule to the requirements in CARES.  

So RBG, let me say first that the OP probably did not have this in mind, but rather selling the shares fairly quickly, using the $70,000 cash in some way, and then buying back shares (for more ore less than $70k, or maybe just less) and rolling them over to IRA within 3 years, which of course won't work, because not the same shares. Also, have no idea why someone would want to do that, but I simply responded to the hypothetical assuming, for sake of argument, that not selling the shares was a possible scenario.

So in your example, I think your distribution amount for 1099-R would be $70k, and you would include that in 1/3 chunks ($23,333) in 2020, 2021, and 2022. Assuming you never sell the shares, and then towards end of 3 years you roll them (i.e., the very shares) to an IRA, you could recoup the taxes you had paid on $70k. Note that if you did sell the shares for $105k, and then decided to roll over, under the ordinary 60-day rollover rules you would need to roll over the entire $105k to avoid tax, and I guess the same thing would apply to a CRD. Either way, there is no potential tax avoidance, and the whole idea is sort of pointless if that's what you do. Either way, you end up with stuff worth $105k in an IRA and no tax. But you could have accomplished the same thing by leaving the stock in whatever plan it was in. So the only point would be to take the stock as a hedge against future uncertainty, knowing that at least you had locked in an ordinary income cost of $70k and 3-year averaging, in case you do end up needing to sell the shares for living or other expenses, perhaps because of pandemic-related economic fallout.

Unless I am way off base on my understanding of the Code, here, I think what this points up is that rules that make sense for a 60-day rollover make less sense for 3-year window. But this is a really unusual scenario anyway, because I think few plans even allow in-kind distributions any more.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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Thanks to both Luke and RBG.  This is along the lines of the situation I actually have with an IRA owner.  They took the stock out, took a nose dive and are looking at how to get it back in the plan as the stock is now going back up.  Since it's still stock and has not been cashed out, I believe the stock goes right back in, as you both are also indicating.  I came across the "same property" rules in searching the regs that led me to believe this would be appropriate.

Thanks for helping to also explain the tax side of this.  I just hadn't gotten that far in researching it yet.

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