60 day withdrawal rule
Just clarifying: an individual can take money out of an IRA once per 12 months (not calendar year) and replace it within 60 days and avoid taxes and penalties? Are there any other issues regarding this due to recent rule changes (other than that now the withdrawal is aggregated for all IRAs)?
Thank you.
Permalink Submitted by Alan - IRA critic on Tue, 2015-12-01 18:32
The limitation to all owned IRAs combined is the only change. The 12 months is measured from the date of distribution. If the last distribution rolled over was in Dec 2014, please advise because the limitation then depends on whether that distribution was from the same IRA or different IRA account from the account that would make the current distribution.
Permalink Submitted by Bob Miller on Tue, 2015-12-01 23:03
Client has not rolled over any distributions in last 12 months. On 11/10/2015 he takes a $3000 distr. and on 11/20/2015 takes another $3000 distribution. On 11/30/2015 he wants to rollover the full $6000 utilizing the one rollover per 12 month rule. Is that permissable?
Permalink Submitted by Alan - IRA critic on Tue, 2015-12-01 23:13
No, because he took two different distributions and only one of them can be rolled over. Rollovers are measured by the number of distributions, so it would be OK to take one distribution and complete the two rollovers from it, but not two distributions. There is an escape hatch however if client wants to go through it. That would be to roll one of the distributions back, convert the other one to a Roth IRA, and then recharacterize the conversion back to a TIRA. Then both distributions end up back in the TIRA with no taxable amount. Of course, client could also just retain the Roth conversion if he did not mind paying the tax on it.
Permalink Submitted by Bob Miller on Wed, 2015-12-02 22:33
I do not see any language in the code that prevents 2 distributions, as long as they are within the 60 day window, from being aggregated and doing the one rollover. I have looked at all the code sections and all I see is the “one rollover every 12 month” language. Where does the IRS say one rollover can not consist of 2 distributions??Thanks
Permalink Submitted by Alan - IRA critic on Wed, 2015-12-02 23:20
Following is the language in Sec 408(d)(3)B. It clearly refers to distributions (taxpayer receives and amount), and this situation has 2 different distributions because taxpayer received amounts on two different days, where only one of those can be rolled over:(B) Limitation
Permalink Submitted by David Mertz on Wed, 2015-12-02 23:22
408(d)(3)(B) says
Paring this down, it says that rollover to an IRA is not permitted for any distribution from an IRA if at any time during the 1-year period ending on the day of said distribution the individual rolled over to an IRA any other distribution from an IRA. This means that a rollover of the 11/10/2015 distribution prohibits the rollover of the 11/20/2015 distribution because the 11/20/2015 distribution occurred within 1 year of the 11/10/2015 distribution which was rolled over.
Permalink Submitted by David Mertz on Wed, 2015-12-02 23:24
Alan and I posted essentially simultaneously. We are in agreement.
Permalink Submitted by Bob Miller on Thu, 2015-12-03 17:51
In my example the individual has not rolled over either of his 2 distributions. The code above prohibits a second rollover within the 12 month period; it does not say 2 distributions can be aggregated to effect one rollover. I do not see what I am missing here.
Permalink Submitted by David Mertz on Thu, 2015-12-03 18:41
The rule governs the number of distributions that can be rolled over, not the number of rollovers. In the case you described where there were two separate IRA distributions of $3,000 each, rolling over $6,000 to an IRA would require rolling over each of the separate $3,000 distributions, which would be two rollovers. The two distributions cannot be aggregated and treated as a single distribution to be rolled over in a single rollover; nothing in the tax code permits such aggregation. Since the two distributions were made within 12 months of one another, only one of the $3,000 distributions is permitted to be rolled over.
Permalink Submitted by Alan - IRA critic on Thu, 2015-12-03 18:46
If there have been no prior distributions rolled over in the past 12 months, and the individual takes out 2 separate distributions, they can roll over only one of them. I think you are just looking at the rollover contribution, not the distributions themselves. See the quoted language in 2 prior posts – it states that if someone takes a distribution they cannot roll it over IF in the prior 12 months they took a another distribution that was rolled over. They would have a choice here of which one to roll over, but as soon as they do a 60 day rollover with either of these distributions, they cannot roll over the other one. But it would be OK to take a single distribution, and roll part of it over on one day and the rest on another day. Only one distribution is being rolled over. The limitation is based on the number of distributions that are rolled over, not on the number of rollover contributions.