60 day IRA “loan”

Submitted by Steve Diol on Tue, 2015-01-27 04:12

I’m meeting with a new client that recently cashed everything out of his IRA Rollover….he did this prior to the end of 2014, and now wants to deposit the cash in an IRA at my firm…(within the 60 day window)

For RMD purposes, shouldn’t we use the account value on the day it was removed from his old firm?

Just because the IRA value on 12/31 was $0, doesn’t mesn he gets around the RMD



Submitted by Alan - IRA critic on Tue, 2015-01-27 04:54

Correct. This is covered under the “outstanding rollovers” rules. The amount that is rolled over must be added to whatever other balance (apparently 0 in this case) exists in his IRAs as of 12/31. Of course, any portion of this distribution that represents his 2014 RMD cannot be rolled over and would not be part of the 12/31 balance. This also assumes that he qualifies to complete the rollover, since he was only allowed one per IRA account in a 12 month period under the rules in effect through the end of 2014.

Submitted by Charles Csakai on Wed, 2017-12-13 15:14

I have an extra wrinkle.  Client did a $400,000 distribution in December 2016 and rolled it over in February w/in 60 days.  He had taken his RMD in November.However, the RMD was wrong because he changed his beneficiary designation in late 2016 and could no longer use the Joint Life Table; he should have taken $40,000 more.The $40,000 is an excess and needs to be taken out plus earnings attributable (say $1,000).  Question as to the 12/31/16 value to use for 2017 RMD?  (Let’s say 12/31/16 FMV of the account shown on system was $500,000).Is it (a) $900,000 [12/31 FMV + rollover amount]; (b) $860,000 [12/31 FMV + rollover amount – excess]; or (c) $859,000 [12/31 FMV + rollover amount – excess – earnings]?Thanks.

Submitted by David Mertz on Wed, 2017-12-13 16:54

I choose (b) $860,000 [12/31 FMV + rollover amount – excess].  My reasoning is that only $360,000 was an eligible rollover contribution and is the amount to be added to the $500,000 year-end value.  The other $40,000 constitutes a new, excess contribution in 2017, not a rollover, regardless of how it is reported on the 2017 Form 5498.

Submitted by Alan - IRA critic on Wed, 2017-12-13 18:59

  • I agree with DMx. Technically, this was not a rollover contribution of the 40,000 notwithstanding the 5498. However, there is a risk of the IRS concluding otherwise if the 2016 1040 did not correctly report 40,000 taxable (assuming no IRA basis) on line 15b with an explanatory statement regarding the inconsistency with the 5498. The statement should include the point that the 40,000 is not considered a rollover contribution under Sec 408(d)(3)(E) because it is an RMD. That would be consistent with only 360,000 be added to the 12/31/2016 balance as an outstanding rollover. Further, the 40,000 corrective distribution MUST be completed this year or it will be in the 12/31/2017 year end balance despite the fact that it is an excess contribution. Finally, the corrective distribution does not count toward the 2017 RMD.
  • Probably not the case, but the RMD aggregation rules are tricky. If the client had other IRA accounts and was applying aggregation rules, please advise.
  • Finally, be sure that the RMD did actually increase for 2016. There are exceptions for loss of Table II calcs in cases of death or divorce, but not if the client simply changed a sole spousal beneficiary > 10 years younger.

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