60-day IRA Rollover

Submitted by ShipsnGiggles on Tue, 2016-04-12 13:47

T-IRA owner in 2015 made 2 indirect IRA rollovers – although one was for a much larger amount.

I understand one of the rollovers is invalid due to the IRS new “once per year” rule.

Question(s)
Can the client choose which (i.e. smaller rollover amount) to be the invalid rollover?
What’s the process to unwind the rollover? The assets are currently in an rollover IRA
How is this reported to the IRS?
When is the distribution reported as income? Year of invalid rollover (2015) or year of distribution (2016)?

Thank you



Submitted by Alan - IRA critic on Tue, 2016-04-12 20:17

  • The first rollover was valid and the second one was not eligible and therefore is treated as an excess IRA contribution. Therefore, the choice of which distribution to roll over ended once the first one was rolled over. If neither distribution had yet been rolled and TIRA owner took two distributions, they could have rolled over the larger one, converted the smaller one to a Roth, then recharacterize the conversion and no harm done.
  • Once both have been rolled over and the second was is excess, the second distribution must be reported as a taxable distribution in the year distributed. Then the second rollover is treated as an excess IRA contribution unless taxpayer was otherwise eligible to make the contribution. The corrective distribution is not taxable, but any earnings returned with the corrective distribution are taxable and subject to penalty for the year in which the excess contribution (rollover) was made.


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