HOW DO I CORRECT A MISTAKE IN THE ONE TIME IRA ROLLOVER RULE
BACKGROUND FOR QUESTIONS:
On January 28, 2013 I made a withdrawal from my Schwab IRA account. My intent was to use the money temporarily and return it to an IRA prior to the 60 day time line. However, I didn’t fully understand how the one time in 12 month rule worked. Although I thought of this as one transaction when I withdrew the money, I actually withdrew in two different amounts on the same day at the same time. In one transaction, I electronically moved $93,000 from my Schwab IRA to my Schwab One Brokerage Account. In the second transaction, I electronically moved $245,000 from my Schwab IRA to my Schwab One Brokerage Account. On March 1, 2013 I had Schwab send a check from my Schwab One Brokerage Account for $93,000 to First Onaga Trust to set up an IRA for the purchase of an Oil and Gas Drilling Partnership. On March 25, 2013 I had Schwab administratively move $245,000 electronically from my Schwab One Brokerage account back into the original Schwab IRA. I just discovered yesterday that I had violated the one time rule.
QUESTION # 1:
Can I choose which transaction to count as my one time Rollover or do I have to use the one that occurred first chronologically ? Obviously, if I could, I would choose the $245,000 and pay tax on the $93,000.
QUESTIN # 2:
Once I have selected which transaction to count as my one time Rollover, how do I correct the mistake with the taxable transaction ? What are the mechanics of removing the assets from the IRA ? Are there penalties other than paying the taxes ?
QUESTION # 3:
Is there anyway to correct this without paying taxes on one of the transactions ?
QUESTION # 4:
If I don’t correct this, what are the penalties IRS will levy if they discover it a year or two after I file my tax return ?
Permalink Submitted by Alan - IRA critic on Thu, 2013-04-18 19:35
Permalink Submitted by Charles Robinson on Thu, 2013-04-18 21:51
Thanks for the analysis, it has given me a lot to think about. One additional question: If I protect the $245 K and elect to pay tax on the $93 K, could I recharacterize the $93K First Onago account from a traditional IRA to a Roth IRA, allowing me to leave both the $245 and the $93K in an IRA and then simply pay the additional tax from other non-qualified monies ?
Permalink Submitted by Alan - IRA critic on Thu, 2013-04-18 22:40
Permalink Submitted by Charles Robinson on Fri, 2013-04-19 06:05
Thanks for the advice. I will check my January statement to see if it shows one or two. I know that when I go online and look at the “history” of that account it shows two entries on that day. However, I am quite certain they both occurred within minutes, perhaps seconds of each other which is why I mentally thought of it as one distribution in a single day.
Permalink Submitted by Charles Robinson on Fri, 2013-04-19 06:05
Thanks for the advice. I will check my January statement to see if it shows one or two. I know that when I go online and look at the “history” of that account it shows two entries on that day. However, I am quite certain they both occurred within minutes, perhaps seconds of each other which is why I mentally thought of it as one distribution in a single day.