Indirect rollover dividends
Hi there,
If a customer did an indirect rollover out of a company but then receives additional distributions of dividends, does that violate the once a year rule for indirect rollovers?
In other words, will the customer be penalized 10% for the dividend distributions? This must happen a lot, since dividends can be issued after everything is withdrawn – so how does the IRS view this situation? How can it be avoided?
Thanks
Permalink Submitted by Alan - IRA critic on Mon, 2015-07-13 16:04
The one rollover limit only applies to distributions when an IRA account is on both ends of the rollover. Therefore, if the company plan was a qualified plan, there is no problem. If it was a SEP or SIMPLE IRA, then the rollover limits come into effect and the dividends are not eligible for indirect rollover. If an amount cannot be rolled over, then that amount is taxable and subject to the 10% if customer is under 59.5.
Permalink Submitted by abura98 on Mon, 2015-07-13 16:13
Hi Alan,Sorry for not clarifying properly. Actually, this was an indirect rollover from a Traditional IRA to a Traditional IRA elsewhere. There are no company plans. In this case the dividends are not eligible for an indirect rollover, is that correct?
Permalink Submitted by Alan - IRA critic on Mon, 2015-07-13 18:08
You are correct. The dividends or any other IRA distributions are not eligible for indirect rollover for 12 months after the last distribution date that was rolled over. If the customer already has the dividends and 60 days have not yet passed, he could convert them to a Roth IRA, which would not be subject to the rollover limit. Taxes would still be due, but no penalty and the money would therefore be in a Roth IRA at a lower cost than just keeping the money in a taxable account.