Running afoul of the once-per-year rollover rules
Semi-hypothetical: Suppose I take a $75k IRA distribution on 04/01/18 and another $25k distribution on 04/15/18. On 05/01/18 I discover that I don’t need the distribution after all (I had a real estate deal that has now fallen through). On 05/05/18, what is the max that I put back and classify it as an indirect rollover subject to the once-per-year rules? Is it $75k, because that’s one distribution or is it $100k because I’m making one rollover contribution? thanks,
Permalink Submitted by Alan - IRA critic on Thu, 2018-04-26 18:13
If the real estate purchase would have met the definition of a “qualified first home”, and it fell through, then you could roll back all 100k since the one rollover limitation does not apply in that situation. However, if the purchase would not have been a qualified first home, and you are still holding the entire 100k, the most you can roll back is 75k, the larger distribution. Rollovers are counted by the distribution, not by the amount of rollovers. Further, if you are stuck with the 25k being taxable, you might consider converting it to a Roth IRA. A conversion will upgrade the type of IRA, does not count against the one rollover rule, and will avoid the 10% penalty on the 25k. It would be a better outcome than paying 10% more in taxes and having 25k lost to your IRA.
Permalink Submitted by Nathan Kastner on Thu, 2018-04-26 18:18
Thank you kindly. The real estate in question is not a QFH, but that’s good to know. Based on your answer, $75k is the number. Interesting thought about the Roth conversion. That’s worth considering, and I had not previously thought of that. Does it not matter that the $25k has been sitting in a checking account for two weeks? Can it just be “put back” into a Roth instead of a tIRA and classified as a conversion (paperwork being properly completed, of course)? Also, no 10% in this case. Our semi-hypothetical dude is 65.
Permalink Submitted by Alan - IRA critic on Thu, 2018-04-26 18:34
Yes, it would just be a 60 day rollover to a Roth IRA and reported as such on Form 8606. There is never a penalty for a conversion, so the IRA owner did not have to be over 59.5. Effectively, this would leave allow for the large distribution to be rolled back to a TIRA, and the smaller one to a Roth IRA as a taxable conversion.