Permalink Submitted by Jose Morales on Thu, 2008-09-25 17:19
A rollover occurs after an individual has taken a reportable distribution from an IRA account. It is the re-depositing of the funds within the 60 day period allowed that is the rollover. This re-deposit is reported to the IRS and the individual on tax form 5498.
A transfer is a movement of IRA funds between two like IRAs* in which there is no constructive receipt by the individual. Neither the withdrawl nor deposit of the funds are reported on any tax forms. The details of the transaction can vary depending on the financial institutions that the individual is dealing with.
*for some reason they decided to call a qualified HSA funding distribution from a traditional IRA a “transfer” even though it is a reportable transaction.
Permalink Submitted by Alan Spross on Thu, 2008-09-25 20:51
Also, note that there is no limit to the number of unreported transfers that can be done, while a rollover is limited to one per IRA account including the receiving IRA account within a rolling 12 month period.
Therefore, once you use your one permitted rollover, any rollovers from the same account are not permitted for the next 12 months and direct trustee transfer is the only way left to change custodians.
Every once in awhile an IRA custodian mistakenly reports a transfer on a 1099R. If you cannot get the custodian to rescind the 1099R, then you will need to show evidence to the IRS that the funds actually moved by direct transfer if another rollover makes this issue pertinent.
Permalink Submitted by Clyde Wolf on Fri, 2008-09-26 00:58
[quote=”[email protected]“]
Every once in awhile an IRA custodian mistakenly reports a transfer on a 1099R. If you cannot get the custodian to rescind the 1099R, then you will need to show evidence to the IRS that the funds actually moved by direct transfer if another rollover makes this issue pertinent.[/quote]
Doing a Trustee to Trustee Transfers, I have always received 1099-R forms.
And the new Trustee organization issues the 5498 showing the deposit.
Is the 1099-R and the 5498 not necessary?
Certainly if the 1099-R is issued, the 5498 is needed.
And the 5498 is issued to include new contributions.
Permalink Submitted by Alan Spross on Fri, 2008-09-26 02:25
The 1099R and 5498 should be completed in tandem. For a direct IRA to IRA transfer, neither should be issued as these should be non reported transfers per p R-4 of the 1099R Inst.
An exception does apply to direct rollovers from a QRP to an IRA as these must all be reported on line 16 of Form 1040. The term “direct rollover” refers to the hybrid treatment whereby the actual transfer is done directly, but also must be reported as a rollover on the tax return. For these direct rollovers, both a 1099R and a 5498 should be produced.
Perhaps you were referring to the direct rollover where these forms were issued? If so, that would be expected. What I meant to refer to in the prior post was an IRA to IRA transfer, where there should be NO forms issued, but occasionally one gets issued in error and potentially could cause a problem. If the IRA custodian issues a 1099R, it should not be ignored, but reported properly on the tax return for what it actually was, and accompanied by an explanatory statement.
Recharacterization are another exception where the forms should be issued even when done by direct transfer.
Permalink Submitted by Keith Hall on Mon, 2008-10-06 14:31
I have a client that wants to transfer a quarter of her 401k money out every couple of weeks into an IRA rollover acct. So she would have 4 transfers out of her 401k into her IRA rollover. Does this fall under the once per 12 month rollover rule or does it only count for money moving out of the new rollover account?
Permalink Submitted by Jose Morales on Mon, 2008-10-06 16:33
Funds are moved from a 401K to an IRA via a Direct Rollover or what is sometimes referred to as an Indirect Rollover. A Transfer, as in the non-reportable moving of funds between like retirement accounts, is not available. There are similarities but also significant differences between all of these terms and it is easy to confuse them if you do not work with retirement accounts on a daily basis.
If your client moves these funds from their 401K to an IRA via a Direct Rollover it will not count against their 1 allowable rollover every 12 months.
Permalink Submitted by Ed Shanks on Mon, 2008-10-13 00:15
Let’s see if I have this right please. In Dec. 2007 upon retiring, I transferred my 401K (govt. Thrift Savings) to the Vanguard Wellington fund as an IRA. Vanguard lists this as a Rollover on my statement even though I never took possession of any check or cash. The money went directly from my retirement account to Vanguard. Vanguard says this is correct and since the money was from a recognized employee retirement fund, I can now transfer the money to a bank CD of my choice without any consequences from the 1 year rule.
Permalink Submitted by Alan Spross on Mon, 2008-10-13 01:06
Yes, that is correct. You are allowed one rollover FROM an IRA account, and thus far you have not used that one rollover. If you move the funds by direct transfer to another custodian, you still will have a rollover left because direct IRA transfers do not count.
If you withdraw the Vanguard funds using a check payable to you and roll it over yourself, then you will have used the one rollover permitted. You would not be permitted another one from the new custodian for 12 months. But you ARE permitted to do that rollover if you choose.
But before going to all this trouble, check if Vanguard offers FDIC insured CDs directly.
Permalink Submitted by Jose Morales on Thu, 2008-09-25 17:19
A rollover occurs after an individual has taken a reportable distribution from an IRA account. It is the re-depositing of the funds within the 60 day period allowed that is the rollover. This re-deposit is reported to the IRS and the individual on tax form 5498.
A transfer is a movement of IRA funds between two like IRAs* in which there is no constructive receipt by the individual. Neither the withdrawl nor deposit of the funds are reported on any tax forms. The details of the transaction can vary depending on the financial institutions that the individual is dealing with.
*for some reason they decided to call a qualified HSA funding distribution from a traditional IRA a “transfer” even though it is a reportable transaction.
Permalink Submitted by Alan Spross on Thu, 2008-09-25 20:51
Also, note that there is no limit to the number of unreported transfers that can be done, while a rollover is limited to one per IRA account including the receiving IRA account within a rolling 12 month period.
Therefore, once you use your one permitted rollover, any rollovers from the same account are not permitted for the next 12 months and direct trustee transfer is the only way left to change custodians.
Every once in awhile an IRA custodian mistakenly reports a transfer on a 1099R. If you cannot get the custodian to rescind the 1099R, then you will need to show evidence to the IRS that the funds actually moved by direct transfer if another rollover makes this issue pertinent.
Permalink Submitted by Clyde Wolf on Fri, 2008-09-26 00:58
[quote=”[email protected]“]
Every once in awhile an IRA custodian mistakenly reports a transfer on a 1099R. If you cannot get the custodian to rescind the 1099R, then you will need to show evidence to the IRS that the funds actually moved by direct transfer if another rollover makes this issue pertinent.[/quote]
Doing a Trustee to Trustee Transfers, I have always received 1099-R forms.
And the new Trustee organization issues the 5498 showing the deposit.
Is the 1099-R and the 5498 not necessary?
Certainly if the 1099-R is issued, the 5498 is needed.
And the 5498 is issued to include new contributions.
Permalink Submitted by Alan Spross on Fri, 2008-09-26 02:25
The 1099R and 5498 should be completed in tandem. For a direct IRA to IRA transfer, neither should be issued as these should be non reported transfers per p R-4 of the 1099R Inst.
An exception does apply to direct rollovers from a QRP to an IRA as these must all be reported on line 16 of Form 1040. The term “direct rollover” refers to the hybrid treatment whereby the actual transfer is done directly, but also must be reported as a rollover on the tax return. For these direct rollovers, both a 1099R and a 5498 should be produced.
Perhaps you were referring to the direct rollover where these forms were issued? If so, that would be expected. What I meant to refer to in the prior post was an IRA to IRA transfer, where there should be NO forms issued, but occasionally one gets issued in error and potentially could cause a problem. If the IRA custodian issues a 1099R, it should not be ignored, but reported properly on the tax return for what it actually was, and accompanied by an explanatory statement.
Recharacterization are another exception where the forms should be issued even when done by direct transfer.
Permalink Submitted by Clyde Wolf on Fri, 2008-09-26 16:00
Alan-oniras,
Thank you for the clarifications.
Permalink Submitted by Keith Hall on Mon, 2008-10-06 14:31
I have a client that wants to transfer a quarter of her 401k money out every couple of weeks into an IRA rollover acct. So she would have 4 transfers out of her 401k into her IRA rollover. Does this fall under the once per 12 month rollover rule or does it only count for money moving out of the new rollover account?
Permalink Submitted by Jose Morales on Mon, 2008-10-06 16:33
Funds are moved from a 401K to an IRA via a Direct Rollover or what is sometimes referred to as an Indirect Rollover. A Transfer, as in the non-reportable moving of funds between like retirement accounts, is not available. There are similarities but also significant differences between all of these terms and it is easy to confuse them if you do not work with retirement accounts on a daily basis.
If your client moves these funds from their 401K to an IRA via a Direct Rollover it will not count against their 1 allowable rollover every 12 months.
Permalink Submitted by Ed Shanks on Mon, 2008-10-13 00:15
Let’s see if I have this right please. In Dec. 2007 upon retiring, I transferred my 401K (govt. Thrift Savings) to the Vanguard Wellington fund as an IRA. Vanguard lists this as a Rollover on my statement even though I never took possession of any check or cash. The money went directly from my retirement account to Vanguard. Vanguard says this is correct and since the money was from a recognized employee retirement fund, I can now transfer the money to a bank CD of my choice without any consequences from the 1 year rule.
Permalink Submitted by Alan Spross on Mon, 2008-10-13 01:06
Yes, that is correct. You are allowed one rollover FROM an IRA account, and thus far you have not used that one rollover. If you move the funds by direct transfer to another custodian, you still will have a rollover left because direct IRA transfers do not count.
If you withdraw the Vanguard funds using a check payable to you and roll it over yourself, then you will have used the one rollover permitted. You would not be permitted another one from the new custodian for 12 months. But you ARE permitted to do that rollover if you choose.
But before going to all this trouble, check if Vanguard offers FDIC insured CDs directly.
Permalink Submitted by Ed Shanks on Mon, 2008-10-13 01:53
Thanks, Alan! 😀