One Rollover per year rule
I’m trying to extend the 60 day rule for a client while they are waiting for their house to sell. They took a $70k distribution from IRA #1 and they have 30 days remaing to put the funds back to complete the rollover. Can my clients take a distribution of $70k from IRA #2 and use those funds to deposit back into IRA #1 to complete the rollover for IRA #1, thus giving them another 60 days to return the $70k to IRA #2 with the proceeds from the sale of their house? Thank You
Permalink Submitted by Alan - IRA critic on Fri, 2014-06-06 21:35
Yes, assuming no other rollovers within 12 months for distributions from EITHER IRA, they can do this. However, this is the last year that the one rollover limit applies per IRA account. Starting 1/1/2015 a taxpayer is only allowed one rollover for ALL their IRAs combined. Prior to 1/1 they could also do a direct transfer from IRA 1 or 2 to IRA 3, and then get a 3rd 60 day period by taking a distribution from IRA 3 and returning it within 60 days. It is imperative that they do not miss the 60 day rollover deadline because when taxpayers are using their IRAs for loans the IRS will not approve an extension of the 60 day rollover deadline in the event something happened and they missed the deadline. The IRS does not like to have IRAs used for loans and that is the reason that they have closed this loophole starting next year.
Permalink Submitted by David White on Mon, 2014-06-09 15:06
Thank you. And to confirm, they could make a direct transfer from IRA 1 to an new IRA 3 even though they they took a distribution from IRA 1 30 days ago because you are allowed unlimited direct transfers?There is definately a need for a discussion with their accountant who is saying they cannot do any of this this. Thanks again!
Permalink Submitted by Alan - IRA critic on Mon, 2014-06-09 15:39
Yes, they can do the direct transfer from any of the IRA accounts to a new account, and then do a rollover from the new account up the end of this year. The loophole I referred to previously referred to creation of multiple IRA accounts and then using those accounts to do a rollover from each one in order to create a string of IRA loans. That will be shut down 1/1 and taxpayers doing a 60 day rollover late this year will have to wait 12 more months in order to do another rollover from any of their IRAs.
Permalink Submitted by Bruce Steiner on Fri, 2014-06-06 22:05
It was Congress that said you could only do one rollover within 12 months. See Internal Revenue Code Section 408(d)(3)(B). The ability to do a 60-day rollover (but not more than one every 12 months) isn’t a loophole since the statute specifically authorizes it.