Rollover
I have a client that had two IRAs. They did not do a trustee to trustee transfer, rather they had the custodian send them the checks from each of the accounts and then rolled them into another IRA that they had set up. Any problems with this?
Permalink Submitted by Clyde Wolf on Tue, 2008-09-23 16:35
Steveh,
If they completed the rollover within 60 days of receiving the checks there should be no problem. The IRA owner needs to name beneficiaries for the new IRA.
Was any amount withheld for income tax? The IRA owner would need to include that amount in the rollover within the same 60 days to keep this a non-taxable event. This may require taking the withheld amount from savings or borrowing the amount.
In January 2009, the IRA owner will receive a 1099-R from the original IRA trustee showing how much was distributed from that IRA, and how much was withheld for income tax. If the IRA owner was under age 59.5, Box 7 will have a code 1.
The IRA distribution must be reported on their 1040 line 15a. If the entire IRA amount was rolled over, Line 15b would be $0.00. A note by the line would read “ROLLOVER”.
If an amount was withheld for income tax, and the IRA owner did not roll that amount over to the new IRA, then the amount withheld is a distribution from the IRA and is taxable and would be reported on line 15b. This amount could also be subject to the 10% early distribution penalty.
Permalink Submitted by Alan Spross on Tue, 2008-09-23 19:57
In addition, there would be a problem if the client had done another rollover in the 12 months prior to the current rollover from either of the original IRAs. If that occurred the current rollover would be an excess contribution to the new IRA.
Looking forward, the current rollovers also mean that the client cannot to another rollover from the original IRAs if there is any balance remaining there OR from the new IRA that received the current rollovers.
These limitations can be avoided by moving funds by direct transfer as these are not considered rollovers. Assuming that the current rollovers are OK, client should be warned not to to another until 12 more months passes from the date of distribution of the last rollovers. This eliminates the use of any short term 60 day loans from these IRAs.