IRA Rollover of sold stock
An individual distributed stock from their IRA and sold it. Now, within the 60-day timeframe, they wish to rollover the proceeds from the sale. I was able to find a mention of this on the Uncle Fed website, where it seems to indicate that this can be done under the following circumstances:
[i]If you sell the distributed property and roll over all the proceeds, no gain or loss is recognized on the sale. The sale proceeds (including any portion representing an increase in value) are treated as part of the distribution and are not included in your gross income.[/i]
Does this seem reasonable? I wasn’t able to find an actual cite.
Thanks!
Permalink Submitted by Alan Spross on Thu, 2008-05-01 01:32
There seems to be some conflicting information out there relative to this point. Pub 575 has a clearer explanation than Pub 590 on property rollovers:
1) Cash distributed to cash rollover OK
2) Property distributed and sold with cash proceeds rolled over OK. No gain or loss recognized on property sale.
3) Property distributed with different property rolled NOT OK
4) Cash distributed with property purchased and rolled NOT OK
5) Cash and property distributed followed with only a partial rollover calls for an allocation between property and cash for the rolled portion.
It appears that a stock distribution that is sold with new shares repurchased and rolled back is NOT OK, even if the gain or loss on the sale is reported on Sch D. Property with a different basis is likely contrued to be different property even if it is the same issue. But no IRS ruling on this that I am aware of.
Permalink Submitted by Alanna Crawford on Fri, 2008-05-02 19:34
Thank you for the reply. I still have a concern though. Publication 575 is for Pension and annuity income and only references distributions from a qualified plan to an IRA- not distributions from an IRA rolloed over to an IRA. It also says in the beginning of the publication “Information on the tax treatment of amounts you receive from an IRA is in Publication 590, Individual Retirement Arrangements (IRAs).”
As noted, 590 taken alone, would seem to indicate that you must rollover the same assets you distribute to avoid a taxable distribution.
Are there any sources that clarify how to report stock that was distributed from an IRA, sold, and the proceeds rolled into another IRA before the 60-day period is up?
Permalink Submitted by Alan Spross on Sat, 2008-05-03 04:47
After a thorough search, I tend to agree with you. There is no doubt that distributions from QRPs of property other than cash can be sold with the proceeds rolled into an IRA and that is quite clear in Pub 575.
However, as you indicated, this apparently cannot be done when the IRA is the distributing plan. The only source I found that said it could be done was the Ernst and Young 2007 Tax Guide, p 267 (link att’d).
Sec 408(d)(3) in the tax code relative to IRA rollovers only refers to the rollover of cash and other property, and there is no mention of cashing in the other property to complete the rollover.
Rather strange, but I was unable to find any reference that specifically contrasted this difference between QRP to IRA vrs IRA to IRA rollovers, but there seems to be enough here to conclude that you are correct here, and that the IRA distribution of property must be rolled over intact to be considered the rollover of eligible property.
Back to your original case, a new question appears to arise. If the individual cannot rollover the cash, can he re purchase the securities and roll them over? And the sale will probably be reported on a 1099B. Now if he sold at a loss, if he repurchases within 30 days he now has a wash sale so will in this case not be able to write off the loss. If he sold for a gain, looks like he would have to report the ST gain on Sch D.
Permalink Submitted by Alanna Crawford on Fri, 2008-05-09 19:32
Great- thank you for the research!
Permalink Submitted by Bruce Steiner on Fri, 2008-05-09 20:32
[quote=”[email protected]“]After a thorough search, I tend to agree with you. There is no doubt that distributions from QRPs of property other than cash can be sold with the proceeds rolled into an IRA and that is quite clear in Pub 575.
However, as you indicated, this apparently cannot be done when the IRA is the distributing plan. The only source I found that said it could be done was the Ernst and Young 2007 Tax Guide, p 267 (link att’d).
[/quote]
Be careful with secondary sources. They can be useful for background, but they don’t count as authority.