When does the once per year rule apply to rollovers?
Just curious,
1. Suppose a person takes a distribution from their employer sponsored plan and rolls it into an IRA within 60 days, then decides to do another rollover within a 12 month period (receives the funds and rolls them over within 60 days into an IRA), does the first rollover from the employer plan count against the person and prohibit them from doing another rollover in that 12 month period?
2. Suppose within that same 12 month period the person now wants to do another rollover back into an employer sponsored plan (not a trustee to trustee transfer), would they be able to do that since it is not going from IRA to IRA but from IRA to employer plan?
To sum up the two questions, can you do the following within a 12 month period: Employer plan–>IRA–>Employer plan?
In neither of these cases would it be a trustee to trustee transfer which is of course unlimited in transfers and obviously the preferable way to go to avoid withholdings, etc.
One reason for all of this might be to try take advantage of the 60 day window of getting access to retirement funds more than one time in a 12 month period.
Finally, are there any IRS docs or publications that address this?
Thank so much in advance for any response.
Permalink Submitted by Alan Spross on Tue, 2012-10-09 04:17
1) No. The limitation only applies to IRA to IRA rollovers.
2) Yes, an IRA to employer plan rollover does not count.
Doing a round trip from employer plan to IRA and back to employer plan still leaves room for one IRA to IRA rollover in the interim since neither end of the round trip counts against the one rollover per 12 month limitation.
While p 23 of Pub 590 is titled “Rollover from one IRA to another” under which the waiting period is covered, the actual supporting documentation is buried in the tax code.
The following is Sec 408(d)(3) of the tax code: (prepare to deal with several double negatives here, and even with the following documentation, it is difficult to follow)
>>>>>>>>>>>>>>>>>>>>>.
(3) Rollover contribution
An amount is described in this paragraph as a rollover
contribution if it meets the requirements of subparagraphs (A)
and (B).
(A) In general
Paragraph (1) does not apply to any amount paid or
distributed out of an individual retirement account or
individual retirement annuity to the individual for whose
benefit the account or annuity is maintained if –
(i) the entire amount received (including money and any
other property) is paid into an individual retirement account
or individual retirement annuity (other than an endowment
contract) for the benefit of such individual not later than
the 60th day after the day on which he receives the payment
or distribution; or
(ii) the entire amount received (including money and any
other property) is paid into an eligible retirement plan for
the benefit of such individual not later than the 60th day
after the date on which the payment or distribution is
received, except that the maximum amount which may be paid
into such plan may not exceed the portion of the amount
received which is includible in gross income (determined
without regard to this paragraph).
For purposes of clause (ii), the term ”eligible retirement
plan” means an eligible retirement plan described in clause
(iii), (iv), (v), or (vi) of section 402(c)(8)(B).
(B) Limitation
This paragraph does not apply to any amount described in
subparagraph (A)(i) received by an individual from an
individual retirement account or individual retirement annuity
if at any time during the 1-year period ending on the day of
such receipt such individual received any other amount
described in that subparagraph from an individual retirement
account or an individual retirement annuity which was not
includible in his gross income because of the application of
this paragraph.
>>>>>>>>>>>>>>>>
EXPLANATION:
Note that the final paragraph (B) ” Limitation” states that a non taxable rollover is not allowed if the taxpayer received another such distribution FROM AN IRA within the 12 month window. This provision excludes a distribution FROM an employer plan from the limitation since these did not originate from an IRA.
The other exemption from the limitation is for a distribution FROM an IRA rolled to an eligible retirement plan * (that definition excludes an IRA). Here, note that paragraph B) Limitation applies to amounts described in (A)(i) above, but not to amounts described in (A)(ii) above. A(ii) is for rollover TO an eligible retirement plan which excludes IRAs in the definition.
* IRAs are excluded from the listed eligible retirement plans because they are listed as (i) and (ii) of 402(c)(8)(B) referenced above. Note that (i) and (ii) are NOT included in the Sec 402 subsections in the above wording.