Disqualified rollover
I mistakenly rolled over 3 times from the same IRA with a one year period. What are the tax consequences of the 2nd and 3rd rollovers? Do I just tell the bank to change those from an IRA to a regular account since those rollovers were invalid?
Permalink Submitted by Alan Spross on Fri, 2011-02-25 20:06
You took distributions on 3 different dates and rolled them back to the same or to a different IRA?
If so, you would probably want to retain the largest rollover only and treat the others as excess regular contributions requiring corrective distributions. A bank will probably just distribute those accounts (not change the account type) but they should code the new distributions as excess contributions corrections. You would then report those two as taxable distributions when originally distributed, and for the removal only the earnings on the excess contribution would be taxable. These will all be combined on one 1099R. On your 1040, you would enter “rollover” next to 15b and not include the one allowed rollover in the 15b total.
Example: You distributed 3k in May, 4 k in July and 5k in Sept. Your 1099R will report 12k distributed. You want to keep the largest rollover so would report 7k as taxable income on line 15b of Form 1040 and “rollover” next to 15b for the 5k. Then have the 7k distributed as excess contributions with any earnings. The earnings would also have to be added to line 15b, and you probably face a 10% penalty as well on the line 15b amount.
Remember, if any transfers were done directly, they don’t count. Roth conversions do not count either.