401k direct transfer, followed by ira indirect rollover
I moved my 401k to a traditional Ira via direct transfer,( no 20% withheld and check payable directly to trustee), within the same year I took a check from the same traditional Ira, payable to me, but re-deposited it into a new Ira within 60 days. I just want to be sure I did not trigger the 1 year rule, or cause a taxable event. Information on the internet is very vague on this point and it worries me.
Thanks in advance for your help
Richard Lynch
Permalink Submitted by Greg Henson on Tue, 2012-05-01 19:18
Richard:
As long as you put the full amount back into an IRA within 60 days you are fine. And by full amount I mean taxes too. So if you took a gross distribution of $100,000 and withheld 20% for taxes to receive a net check for $80,000, you would need to put back the full $100,000 to avoid taxes/penalties. If you just put back the $80,000 then you would owe taxes/penalties on the remaining $20,000
Permalink Submitted by Richard Lynch on Tue, 2012-05-01 20:48
No, the transfer of the 401k to IRA was trustee to trustee, check was payable to trustee not me, so no taxes were withheld. My worry is later the same year I took a portion of the money from the same IRA and moved it to a different IRA. The second movement was a check payable to “myself”. I Just want to make sure the first movement of 401k to Ira did not trigger the 1 year rule, causing the second movement to be a taxable event. I assumed because the 1st movement was 401k to IRA, the 1 year rule was not evoked, and I was allowed to move a portion to a different IRA. I should have done the seconded movement trustee to trustee, but I didn’t and now I’m worried.
Permalink Submitted by Alan Spross on Tue, 2012-05-01 21:09
This is not a problem. When an employer plan is on either end of an IRA rollover, the rollover does not count either when done indirectly or by direct rollover .
Your second rollover from IRA to IRA does count, so you now have to wait 12 months before doing another IRA to IRA rollover either from the IRA that distributed the first IRA rollover OR from the IRA that received it. Of course, you can do unlimited direct Trustee transfers between IRA accounts.
Permalink Submitted by Richard Lynch on Tue, 2012-05-01 22:01
Thanks for the peace of mind
Richard