temporary rollover of shares
My client has the same stock in his self-directed IRA account and in his regular (after-tax) brokerage account. Due to declining value of the stock, his broker issued a margin call on his regular account. The client withdrew 10,000 shares of the stock from the IRA, and deposited the shares into his regular account, to raise the value of the account. The stock value continued declining. Within 60 days of the IRA withdrawal, the client put the 10,000 shares back into the IRA. The client’s Form 1099-R from the broker indicates a distribution of $50,000, but the Form 5498 indicates a contribution of only $30,000, because the shares declined in value. There were no other transactions in the IRA for the year.
My question is, Can the rollover contribution be the same amount as the original withdrawal, since the same number of shares was re-deposited to the IRA?
Permalink Submitted by Alan Spross on Mon, 2009-10-12 22:38
No, the client cannot add cash to bring the value of the rollover back up to $50,000. To have a complete rollover here, the client must re deposit the same 10,000 shares to his IRA, or sell the shares and re contribute only the full cash proceeds of the sale.
The dollar difference between the 1099R and the 5498 is not a problem, since the 5498 instructions require reporting of actual value received. In cases where property instead of cash is rolled over, the difference in amounts between the two forms is typical and expected by the IRS. That said, the statements showing the number of shares should be retained in the event the IRS questions the large difference in value or wants to see evidence that the full number of shares distributed were also re contributed back to the IRA, ie. the rollover was NOT a partial one.
This particular rollover should be reported in the usual fashion, on line 15a and 15b of Form 1040, with -0- on 15b and “rollover” entered next to 15b.
Finally, the client should be alerted that he has now used his one permitted rollover from this IRA account, so cannot do this again for 12 months from the date of the original distribution of shares.