Distribution returned to plan

If a participant takes a distribution but then returns it to the plan within 60 days, 

1.   Can they do this?
2.   Would a 1099-R need to be generated for the original payout?  or can it be considered a wash?

I recall that if someone takes a payout and never cashes the check then deposits the check into an IRA then it's an IRA rollover.  A clean transaction.  Am I mistaken, can they cash the check and then eventually roll the total amount into the IRA within 60 days and still get the rollover benefit?

Does the Plan accept rollovers?

Yes.  Can it rollover from itself?  and then there is the question of a 1099-R

Be careful about concluding that the plan accepts rollovers. The plan may accept rollovers only from participants. If the distribution is a total distribution, then the person who wants to roll funds back is not a participant (interpretations matter here) and is not eligible.  There are variations on this theme.

About QDROphile’s point, if the distribution followed the individual’s severance from employment and was her whole account, she might no longer be a participant.

If the distribution would not have been provided except for the distributee’s hardship, the distribution might not have been an eligible rollover distribution.

I don't know why this guy is doing it but here is the scenario -

- It is a single member plan
- He is still working and would be a participant
- He wants to pull say $10K out BUT he said he may put it back in

The plan would need to generate a 1099-R for the distribution, I mean after all money was paid out.
 He tells me he is "rolling it over".  Let's say he pulls the money and decides to put it back into the plan in a month.  No 1099-R was prepared because it's not time to.  Do I prepare one and code it a Rollover because he took a payout from the plan and then put it  back into a plan (be that his own). 

As for putting it back, he's a single member plan with less than $250K, no EZ to file.  Record it as a rollover contribution on the books and call it a day?  

Plan generates the 1099 for the 10k distribution - shows the 20% withholding - since it was not a direct rollover. Just a distribution to the plan. You do not report it as a rollover, 'cause it wasn't.

Client is telling me he has 60 days to roll it into another tax deferred investment.  Is it the fact that the paper trail would show he cashed it and took receipt that is the fault in his understanding?  Could he put the money back but just can't recoup the 20% withholding?

1 hour ago, Basically said:

Client is telling me he has 60 days to roll it into another tax deferred investment.  Is it the fact that the paper trail would show he cashed it and took receipt that is the fault in his understanding?  Could he put the money back but just can't recoup the 20% withholding?

No, the problem here is you are getting too hung up on the idea the money is coming back to the plan it came from when thinking about the 1099-R.  Where the money is rolled over to is irrelevant to the 1099-R question.  

If A takes $10k distribution.  A gets a check for $8k and $2k is sent to the IRS.  If A puts $10k into an IRA within 60 days the the plan prepares a 1099-R that show A got a $10k taxable distribution with $2k in withholding.   The plan doesn't care if the money ended up in an IRA in the end.  You prepare the 1099-R based on what happened as the money left the plan- period full stop! 

Assuming A can roll $10k back into the plan and does so the 1099-R still shows a $10k taxable distribution with $2k sent to the IRS. 

In both cases when the person completes their 1040 they will show the money as rolled into a qualified plan and thus no taxes due.   He will get credit for the withholding at that point and his net taxes due or refunded will make him whole. 

To repeat the 1099-R reflect the transaction as the money leaves the plan AND DOESN'T REFLECT ANYTHING THAT HAPPENS TO THE MONEY BEYOND THAT EVENT. 

Quote

He wants to pull say $10K out BUT he said he may put it back in.

As Peter notes, and as implied in the quote above, there may be doubt that the distribution is an eligible rollover distribution, ie, it might not be rollable to any IRA/Qualified plan.  (If it's not rollable, the 20% withholding does not apply, but another withholding rule will apply.)  If that is the case, there is no (probably) no vehicle for a rollover or "putting it back".  Something that should have been discussed with the participant (who is also the plan sponsor, apparently) at the time he/she expressed interest in any type of withdrawal.  If the participant is treating this like a piggy bank, someone should explain the difference.

It may be a broken record with me: "Please put on your consulting hat!"

There might be value in reading this, in conjunction with the plan document: https://www.irs.gov/retirement-plans/plan-participant-employee/when-can-a-retirement-plan-distribute-benefits

11 minutes ago, david rigby said:

There might be value in reading this, in conjunction with the plan document: https://www.irs.gov/retirement-plans/plan-participant-employee/when-can-a-retirement-plan-distribute-benefits

That's a great link!  Thanks.  

I'm going to inform the client what ESOP pointed out. 

1 hour ago, ESOP Guy said:

If A takes $10k distribution.  A gets a check for $8k and $2k is sent to the IRS.  If A puts $10k into an IRA within 60 days the the plan prepares a 1099-R that show A got a $10k taxable distribution with $2k in withholding.   The plan doesn't care if the money ended up in an IRA in the end.  You prepare the 1099-R based on what happened as the money left the plan- period full stop! 

Unfortunately I get to involved and try to help the client.  It's black and white as stated above.

Forgetting about all the reporting concerns, isn't anyone bothered by the "rollover" into the same/source plan? I did not think that was permissible, at least directly. You could go plan to IRA back to plan, but this, into the same plan? I would say no, unless it was a permissible CARES repayment. I googled the question on got this IRS website:

https://www.irs.gov/taxtopics/tc413

Applicable excerpts:

A rollover occurs when you withdraw cash or other assets from one eligible retirement plan and contribute all or part of it, within 60 days, to another eligible retirement plan.

If a plan pays you an eligible rollover distribution, you have 60 days from the date you receive it to roll it over to another eligible retirement plan.

You can choose instead a direct rollover, in which you have the payer transfer a distribution directly to another eligible retirement plan (including an IRA). 

"Another" eligible plan is NOT the source plan. If this said "an" eligible plan then maybe I would concede, but it does not - and Publication 575 which is referenced on this site (and as more formal guidance maybe carries more weight) has similar language.

hey, whatever happened to conduit IRAs? 

This is covered by Code §402.  §402(c)(1) says the distribution of property paid in an eligible rollover distribution (ERD) is not taxable if the property is transferred to "an eligible retirement plan" - and (c)(3) provides 60 days to do so.  Treas. Reg. §1.402(c)-2 fills in many of the gaps (in a convenient Q&A format) and provides in Q&A-1:

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(a) General rule. Under section 402(c), as added by UCA, any portion of a distribution from a qualified plan that is an eligible rollover distribution described in section 402(c)(4) may be rolled over to an eligible retirement plan described in section 402(c)(8)(B).

I don't see any wording regarding "another" eligible retirement plan.  The cited sections above, Code §402(c)(4) and (c)(8)(B), simply refer to "a qualified trust". See also §1.402(c)-2, Q&A-2 and Q&A-11.  

I don't know that I saw any actual suggestion above that the distribution itself is not an ERD, but assuming it is and the distribution is bona fide, then I don't see any prohibition against rolling back into the plan from which it was initially distributed.  (Indeed, this also seems good policy - let them change their mind and keep their plan balance intact.)

Rolled over or not, he should get a 1099-R and have 20% withheld.

Note: The language used for Roth accounts is different.  Per Code §402(c)(8)(B):

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If any portion of an eligible rollover distribution is attributable to payments or distributions from a designated Roth account (as defined in section 402A), an eligible retirement plan with respect to such portion shall include only another designated Roth account and a Roth IRA.

Interesting, I guess it shouldn't be surprising that Internal Revenue Code, website and publication are not consistent among each other - maybe some of those new 87,000 agents can rectify that!

I interpret that phrase differently. I believe it is meant to say (or mean) that it can only be rolled to a designated Roth account, or Roth IRA - in other words, can't be rolled to non-Roth.

I don't believe it is meant to preclude rolling it back to the same plan Roth designated account. 

But I may be all wet. I haven't done any research on this! 

My two cents - addressing the original post - assuming a proper distributable event (and as others said), the funds leaving the plan should be reported by the plan on a 1099-R form.  The plan should tell you whether or not it accepts rollovers.  There are two different transactions at play year - (1) funds leaving the plan; (2) funds rolling into the plan.  It matters not that the original funds came from the same Plan/participant for reporting purposes.