360 day rollover rule
Have a client in an old IRA annuity with no surrender so we set-up a 5-year distribution to roll it to a brokerage IRA. The check comes from the annuity at the same time each year, however, this years was deposited into the brokerage IRA was 7 days before the 365 day date of last years deposit.
The check from the annuity IRA was more that 360 days from the prior check but the deposit into the receiving IRA was less than 360 days. Does that break the rule or which “date” is the clock on?
Permalink Submitted by Jimmy Rench on Thu, 2015-07-16 19:30
Distribution date.
Permalink Submitted by Alan - IRA critic on Thu, 2015-07-16 20:12
The 12 month period between indirect rollovers is measured from the received date of the distribution. Since client will have received the recent check before the 365 days were completed, this check is not eligible for rollover. The date the rollover is completed is immaterial except for purposes of the 60 day deadline to roll over any distribution. To prevent this in the future, client must arrange for the insuror to extend the distribution date a few days for each successive year OR better yet arrange for a direct trustee transfer because those are unlimited in number. Under the new 12 month one rollover limit, the limit applies to all client’s IRA accounts in total which is yet another reason to have these done by direct transfer in the future. Client should attempt to return the check to the insuror and have the payment redone by direct transfer, but the chances of them agreeing are not good.
Permalink Submitted by Jimmy Rench on Thu, 2015-07-16 21:05
Still a little muddled in my mind. So many of our transfers are wire transfers so the distribution date is the date the clock starts ticking. In the event that a check is issued, is it the date that the client receives the check? If so, how does the IRS track this?
Permalink Submitted by Alan - IRA critic on Thu, 2015-07-16 21:34
They have no way to know for sure the receipt date, more specifically the constructive receipt day. They probably use a generous assumed mail delivery time, generous enough that no one would dispute it lacking a very unusal situation.
Permalink Submitted by Jimmy Rench on Thu, 2015-07-16 22:01
I suppose that is where my confusion in this question lies. Commenter uses the time between deposits, not the actual date the client received the checks. And the original commenter did not indicate how long the client had the check in their possesion before they deposited the check. I am with you in your diagnosis; however, can there really be a definitive answer when no actual dates are provided? Sounds like either way it will be cutting it close.Now there is a potential issue with an excess contribution, correct?
Permalink Submitted by Alan - IRA critic on Thu, 2015-07-16 22:20
Yes. If a rollover is done of a non eligible distribution, not only is the distribution taxable and possibly subject to penalty, but an excess IRA contribution has been created unless the person is eligible to make the contribution as a regular (non rollover) contribution.
Permalink Submitted by Bob Williamson on Fri, 2015-07-17 14:38
How would the IRS find out the specific dates of the indirect rollovers? There is no reporting requirement for the specific dates, only for the year as a whole. The IRS found out the dates for Mr. Bobrow due to his other problems, but not routinely.
Permalink Submitted by Alan - IRA critic on Fri, 2015-07-17 20:06
First, there should be some effort from IRA custodians to resist obvious rollover violations such as receiving two rollover contributions within 12 months, particularly when their IRA distributed. With the new rules, the IRS would also know that 1099R forms from two different IRA accounts would not allow both to be rolled into a non Roth IRA. Obviously, whatever computer matching tools the IRS will use will not be evident for quite some time. Finally, there is the usual audit possibilities. It is all hit and miss at this point.