Rollover IRAs
Situation:
Have 12 IRAs (3 at each of 4 custodians)
Can the following be accomplished starting in 2011 without creating a taxable distribution
Withdraw $40,000 on January 3, 2011 from IRA #1 at Custodian #1 to use to repay a loan. On or before March 3, 2011 replace that $40,000 with a withdrawal from IRA #2 at Custodian #2. Within 60 days of the withdrawal from IRA #2, replace the 2nd $40,000 with a withdrawal from IRA #3 at Custodian #3. Within 60 days of the withdrawal from IRA #3, replace the 3rd $40,000 with a withdrawal from IRA #4 at Custodian #4. And so on indefinitely as long as $40,000 is not withdrawn from any one of the IRAs more than once in a 12 month period; i.e., from IRA #1 no sooner than January 4, 2012, etc.
Thanks
Permalink Submitted by Alan Spross on Fri, 2010-12-31 16:50
That sequence of rollovers does not technically violate the 12 month limitation, as long as all these IRA accounts are clear of other rollover distributions in the year preceding this activity and/or remain clear for the year following this activity.
Whether there are any other provisions under which the IRS could question this as a sham to provide a single long term loan from your IRAs is another matter. Both you and the IRS will receive a 1099R for each of these IRAs and a 5498 showing rollover contributions to them. So even though you would just report a total distribution of 240,000 (est) on line 15 of your 1040 with “rollover” next to 15b, the IRS will clearly see the details of the underlying activity. I have not heard of any instances where the IRS took a position against this activity, but there always remains a minute chance that they could at some point.