Potential 60 Day Rollover Rule Exception
A CPA I work with just referred me to a client who made a horrible mistake. They did a full liquidation of an $800k Traditional IRA 30 days ago. They had taxes withheld and received a net amount of $400k. Now they realize the tax implications but they do not have enough funds to cover the full $800k to put back into an IRA within the 60-day time frame.
Since taxes have already been withheld, and they can only put back into an IRA $400k of the total $800k they withdrew, is there any known exception the IRS will grant since they won’t receive the taxes that were withheld originally until they file 2025 taxes? At the very least, I mentioned they need to add the $400k back within the next 30 days.
Permalink Submitted by Alan - IRA critic on Tue, 2025-04-01 18:29
Assuming that he eligible for a rollover (only one allowed over a 12 month period), he can roll back as much as he can afford before the 60 days expires, up to 800k.
It may be worth taking out a HELOC or other loan, but that will take time. He could roll back what he has now, and if through a loan comes up with more before another 30 days expires, he could roll back more. It is legal to roll back a distribution in pieces, since there was only one distribution. If he does not qualify for a rollover at all, there are other options, but no easy answer where the funds would come from.
This must have been intentional with respect to the 50% withholding rate, would be interesting to know what he had in mind?
Permalink Submitted by James Claiborne on Wed, 2025-04-02 11:27
Thank you for the feedback. We are on the same page regarding the HELOC. The first recommendation I made was to deposit the $400k into a new IRA brokerage account and also apply for a HELOC asap. Fortunately, I work with a broker who can get this done inside 30 days. This should get them to ~$600k of the $800k withdrawal.
The total tax they had withheld for Fed. and State, which ended up being around 50%, is a head scratcher, I agree. I am meeting for the first time Friday and will have a better understanding of what transpired. I was hoping perhaps the IRS might have a Rev. ruling for unique situations like this, but I have not found this to be the case.
Permalink Submitted by Alan - IRA critic on Wed, 2025-04-02 12:49
He can stop any 2025 withholding and estimates under the circumstances.
There might also be recourse against the IRA custodian if the custodian mishandled the withheld %, but client would probably know if that was the case.