60 Day Rollover
I have a 50 yo client that has a small business. We converted a traditional to a roth 6 years ago with $30000. Last week he needed money and we withdrew $35000. Originally we were going to return the money inside of 60 days. The concern is that he may need additional money and I believe he could take any additional money needed from his T-IRA and do a 60 day rollover. I understand that the IRS views this transaction on a 12 month period and all IRA’s are viewed as one.
My questions:
Can we take do a 60 day rollover in the same 12 month period as a premature Roth distribution was taken? How are are the earnings on the roth taxed?
Permalink Submitted by Alan - IRA critic on Thu, 2016-09-08 19:38
He can roll over part or all of just one of the distributions. If he needs more money he would not be rolling back any of the first distribution, so could roll back all or part of the second distribution. Whatever amount is NOT rolled back is taxable under the Roth IRA ordering rules. If he has made any regular contributions, the distribution is deemed to come first from the balance of regular contributions, tax and penalty free. Next out of the Roth are conversions, oldest first. If the 30k conversion was done in 2010, the 5 year holding period has been met and such conversion dollars will also be non taxable and without any penalty. Once all regular and conversion contributions have been distributed, earnings would be distributed. Any distribution of earnings would be subject to both tax and 10% penalty. Therefore, some planning needs to be done just before the 60 days is up – whether any of that money will be rolled back, or if not how much the second distribution will be. Again, only one of these distributions can be rolled back to the Roth IRA. The rest will be reported on Form 8606, and that form will determine how much would be subject to tax or penalty.