Rolling Rollovers
I have read and reread IRS Pub 590 (pgs 24-25) but I am having a hard time grasping the Once a Year Rollover rule.
Can the following strategy work to use IRA funds for longer than 60 days?
Let’s say I have 3 IRA’s, each with $50,000. I need $50,000 for a few months. On 4/1 I withdraw $50,000 from IRA #1. 60 days later (5/30) I withdraw $50,000 from IRA #2 and roll it into IRA #1.
Another 60 days later (approx 7/28) I withdraw from IRA #3 and roll it into IRA #2. Finally on 9/27 I put back the original $50,000 into IRA #3.
If this does not comply with the rules, is there a modified version of this that will permit use of some portion of IRA funds for longer than 60 days?
Permalink Submitted by Alan Spross on Sat, 2008-05-31 05:28
Appears OK.
You have not taken more than one rollover distribution from any IRA account and you also have not taken a rollover distribution from any account after that account received a rollover contribution. Each of the IRA accounts made it’s distribution before receiving a rollover contribution.
Permalink Submitted by David Burd on Sat, 2008-05-31 12:42
Dear Alan,
Thank you for the reply. I am re-reading my original scenario and the instructions on p.25 of Pub 590. It looks to me like this series of transactions will run afoul of the rules for the waiting period. But I think something similar could be done by opening new IRAs instead of replacing the funds withdrawn.
Example:
Step 1: 4/1 withdraw $50,000 from IRA #1.
Step 2: 5/29 withdraw $50,000 from IRA #2 and deposit it into a new IRA #A.
Step 3: 7/27 withdraw $50,000 from IRA #3 and deposit it into a new IRA #B.
Step 4: Finally, 9/25 depositing $50,000 into IRA #C.
Permalink Submitted by Alan Spross on Sat, 2008-05-31 20:27
I think you mean to show each “and deposit it” along with the date of the deposit with the prior step.
ie Step 1: 4/1 withdraw 50,000 and deposit it in A on 5/29.
Otherwise, the original distribution from #1 does not get rolled over in time.. etc.
What do you think is wrong with your original plan?
Permalink Submitted by David Burd on Sun, 2008-06-01 12:50
Yes, the deposit into IRA #A is the rollover of distribution from IRA #!; deposit into IRA B is the rollover of funds from IRA #2; etc.
Let me see if I can explain what I think might be wrong with the first scenario in my first post.
First here is the exact language from Pub 590 p.25:
“[b]Waiting period between rollover.[/b] Generally, if you make a tax-free rollover of any part of a distribution from a traditional IRA, you cannot, within a 1-year period, make a tax-free rollover of any later distribution from the same IRA. [u]You also cannot make a tax-free rollover of any amount distributed, from the IRA into which you made the tax-free rollover.[/u]”
From the last sentence above, it seems you can’t roll in and out of the same IRA. That’s why I used 6 different IRA’s to make 3 distributions and subsequent rollovers.
According to the above (and the example in Pub 590), if I rollover a distribution from IRA-1 into IRA-2, then I can’t make a tax-free rollover of any distribution from IRA-2.
Believe me, I am a bit confused by the IRS language in the Pub. But I haven’t found any Treasury Regs that give a better explanation or example of these rules.
Permalink Submitted by Denise Appleby on Sun, 2008-06-01 15:57
[quote=”[email protected]“] [u]You also cannot make a tax-free rollover of any amount distributed, from the IRA into which you made the tax-free rollover.[/u]”
From the last sentence above, it seems you can’t roll in and out of the same IRA. [/quote]
You can.
For instance you can do the following
Distribution from IRA # 1, rollover to IRA # 1 within 60-days
Distribution from IRA # 2, rollover to IRA # 2 within 60-days
Distribution from IRA # 3, rollover to IRA # 3 within 60-days ?
What that sentence is saying is that if a rollover contribution is made to that IRA from another IRA, then you can’t conduct a rollover with assets in those IRA for the next year.
In the example above, IRA # 1 would be locked up for one year, starting with the date the distribution occurs.