60 day rollover repaid from 401k
How does the IRS ensure that a 60 day rollover is repaid with after tax funds? Say client intiates a 60 day rollover from an IRA in Dec 2025, and pays back the funds in Jan 2026 via a partial rollover from a 401k. How do the custodians / IRS catch that one of these must be taxable? Is this a legitimate strategy to defer income up to 60 days? I can think of several reasons why this isn’t allowable but I can’t articulate the process by which it would not be allowed, either at the custodian or later upon tax filing.
Permalink Submitted by Alan - IRA critic on Thu, 2025-07-17 17:22
There will be a 1099R for the IRA distribution and also for the 401k distribution, but in different years. If the rollover contributions are less than the total of those distributions, the shortfall will be taxable. If the full rollover is made to the IRA account within 60 days, the IRA distribution will not be taxable due to the rollover being reported on the 2025 Form 1040. The portion of the 401k distribution that is not rolled over will be taxable on the 2026 1040. The IRA custodian will also issue a 5498 reporting rollover contributions made to the IRA for the year in which the rollover contribution is received.
This could legally result in the taxable income being in 2026 and none in 2025. But if the IRA distribution is reported as a completed rollover, 12 months will have to pass before any other IRA distribution can be rolled back to the IRA.