60-day rollover question

Submitted by Tom Brattain on Thu, 2015-04-30 19:48

A client, in his early 60s, has been withdrawing money from his beneficiary IRA (from deceased spouse), and no longer needs the cash flow. He would also like to “replace” the last two monthly distributions, by “rolling” them back into that IRA.
Can the two monthly amounts be combined and returned as a single rollover amount (within the 60 days) or is he limited to “rolling” back only ONE of the distributions?



Submitted by Jose Morales on Thu, 2015-04-30 20:44

He would not be able to roll the money back into the inherited IRA, but he could roll the money back into an IRA in his own name.  Is there a reason the client wishes to maintain an inherited IRA now that they are over the age of 59 1/2?

Submitted by Alan - IRA critic on Thu, 2015-04-30 22:03

  • The rules for spousal inherited IRAs are different than non spousal inherited IRAs relative to contributions and rollovers. But there were also two distributions taken from the inherited IRA, and only of these distributions can be rolled over under either the former or the newly restricted rollover rules.
  • With respect to the one distribution eligible for rollover, it can be rolled into either an owned IRA or back to the inherited IRA. However, the process of rolling the distribution back to the inherited IRA will result in the inherited IRA being changed to an owned IRA because the rollover contribution means the beneficiary has elected to treat the inherited IRA as their own IRA.
  • There are also RMD related complications if the client only does partial rollovers of this inherited IRA if the inherited IRA is subject to RMDs for any reason, including if the deceased spouse would have reached 70.5 by the distribution year.

Submitted by Ben Meyer on Mon, 2015-05-04 00:20

When an inherited IRA is changed to an owned IRA because of a contribution to the account, how is the updated status of the account recorded?  Does the holder notify the custodian?  Or will the custodian observe that a contribution has been made and update the account status of its own accord?  Does the title of the account change?  Are there any reporting differences?  The mechanics of the election are described in TR 1.408-8, Q&A-5, but the specific pocedure is not described there, nor in PUB-590-B.   

Submitted by Alan - IRA critic on Mon, 2015-05-04 03:11

An IRA custodian should not accept a regular or rollover contribution to an inherited IRA unless they are sure that the beneficiary making the contribution is a sole spousal beneficiary. Upon acceptance, they should know that such a beneficiary has elected to be treated as the owner and should re register the IRA as such. It is likely that one or more requirements of this rule escape some IRA custodians for indefinite periods of time setting up a conflict between the actual status of the IRA and the reported status, however reports of this situation being discovered are almost non existent. That would produce subsequent infractions of several different types including incorrect RMDs, incorrect application of IRA basis or IRS perceived excess contribution infractions in cases where the contribution is proper, but the registration has not been brought current. This should call for revised 5498 forms, amended tax returns or other combinations of issues.

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