IRA withdrawals and trustee to trustee transfer
Client has brokerage account (IRA). A check was withdrawn from the client’s account per the client’s request as follows: Pay to: Allianz Life Insurance Company F/B/O the client. The transferring brokerage company coded this as a distribution. I fear this could be called a taxable event which would make this become a 60 day rollover. The client wishes to institute another withdrawal from the same brokerage account for another purchase! Would this violate any rules or cause this second withdrawal to be a taxable event. (Same brokerage account additional purchase). Can you take more then one 60 day rollover from the same account if it is rolled over to different IRA’s?
Permalink Submitted by Alan Spross on Wed, 2010-12-01 21:48
The brokerage has created a problem here since coding as a distribution will presumably trigger a 1099R, and therefore require the client to report a rollover on his 1040. Since the check cannot be cashed by the client, this is a direct transfer, not a distribution and should not be reported on a 1099R. The consequence is as you expected, ie would be perceived by the IRS as a rollover and therefore eliminate the second rollover within 12 months. Using different receiving IRA accounts does not avoid the problem. Perhaps if client does not want to argue about the first transfer, he should at least ask the broker how to do the second one without a 1099R.
Note that the broker will add up all distributions as one total on the 1099R. There will probably not be a 5498 unless the second custodian(s) makes a similar error. The IRS could not tell how many distributions there were.
My advice would be to try to get assurance from the broker that these transfers will not produce a 1099R, which is the only thing that the IRS will be looking at. If this cannot be resolved with the broker, the client could go ahead and report the rollovers on Form 1040, but keep a copy of the check or other evidence that these were actually transfers and not distributions. The IRS almost never considers the one rollover limit because they don’t get reporting data that allows them to identify these. But if on the outside chance the IRS inquires, client can present the evidence that the funds were actually moved by transfer and there was no distribution.