60 day rollover & roth conversion
Due to large IRA withdrawals last year, an individual needs to avoid taxable distributions from the IRA as much as possible in 2015. On November 12, 2015, he had to take a $15k distribution from his IRA to pay for incidentals as part of a house sale. The goal was to utilize a 60 day rollover when escrow closed to pay back the $15k into the same IRA and avoid a taxable distribution. However, due to unforeseen circumstances, he needed to take a 2nd distribution from the same IRA on December 8th for $9k. Because he is using the 60 day rollover for the 1st $15k transaction, can he open and fund a Roth IRA for $9k (the amount of the 2nd transaction) before December 31, and subsequently recharacterize the conversion back to his IRA, thus avoiding a taxable distribution on the 2nd distribution as well?
Thank you,
Mark Boujikian
Permalink Submitted by Alan - IRA critic on Wed, 2015-12-16 23:52
Yes, he can do that. To avoid the one rollover limitation, as long as one of the distributions has not yet been held 60 days, it can be converted to a Roth IRA because a conversion is not counted as a rollover for purposes of the one rollover limitation. The conversion can later be recharacterized in a direct transfer back to the TIRA, resulting in the second rollover being accomplished in a two step process. In theory, the IRS could probably challenge this using step transaction doctrine, but no sign of them pursuing that yet.