Excess IRA distributions
There was an an article in the WSJ regarding a two step approach to putting back excess IRA distributions beyond the one time transfer which was extended to Nov. 30th. It stated that you could take an amount you withdrew from a traditional IRA and put it into a Roth IRA and later recharacterize the transaction back to a traditional IRA by Oct. 15th 2010.
I questioned Schwab on this and was told that I cound not do that since thay considered it as a second rollover. Am I or they missing something?
Permalink Submitted by Alan Spross on Wed, 2009-11-25 22:18
It sounds like whoever you spoke to was not aware that Roth conversions and recharacterizations do NOT count against the one rollover limitation.
The particular “work around” you are referring to is valid, but it has its limits, namely time limits. You can only convert to a Roth IRA distributions that you have taken within the last 60 days. For someone who has been getting monthly distributions since January, and now has 11 of them, only two of them would be within the last 60 days and therefore eligible for Roth conversion and recharacterization. One of the earlier monthly distributions could be the one that is allowed to be rolled back to the TIRA because RR 2009-82 waived the 60 day rule in favor of the 11/30 deadline. Therefore, only 3 of 11 monthly distributions can be restored to the TIRA, and the other 8 must remain taxable. The work around is more efficient for those who took only a couple distributions all year, with one of them within the last 60 days. In that case, you might be able to get all the funds back to the TIRA.
As you can see RR 2009-82 overlooked making an exception for multiple rollovers. All it would have needed to say was that any amounts taken in 2009 that would have been RMDs had the RMDs not been waived could be restored to the IRA by 11/30. But they neglected to think about people taking RMDs on installments and how the one rollover rule would derail their ability to restore the funds.
Permalink Submitted by herbert panzer on Thu, 2009-11-26 13:15
Thanks for your help in understanding how the excess distributions can be put back.Based on what you stated I am unable to meet the recent 60 day requirement and am stuck with an unnessesary tax burden.