Violation of 1 per year IRA withdrawal and repayment rule?

Submitted by Lance Millar on Tue, 2019-11-05 16:41

80-year-old R/O IRA owner took six withdrawals in one year due to cash flow needs. All funds were put back into the IRA within 60 days of each withdrawal. Two questions:

1) Does the IRS have any leeway/flexibility to overlook this error?
2) Which of the six withdrawals will be “allowed” (assuming the other five amounts will be added to her income for 2019).



Submitted by Alan - IRA critic on Tue, 2019-11-05 17:24

Was the RMD for that IRA satisfied before any of these distributions? The first distributions are applied to the RMD for that IRA and cannot be rolled over. The one rollover per 12 month limit also means that only the first of the 6 distributions was eligible for rollover if the RMD had already been satisfied. Therefore, we need to know what the RMD amount was, and the date and amount of all distributions made in 2019 to determine which distribution of the 6 (if any) was eligible for rollover.  If there is more than one IRA account involved in this, please advise.  Once the allowed rollover amount is determined, all the others are taxable and become excess IRA contributions that must be removed with earnings. Again, the only way to unravel this is to know the specifics of each distribution going back to 1/1.

Submitted by Lance Millar on Tue, 2019-11-05 18:29

Thanks, Alan.  Yes, the 2019 RMD was satisfied prior to these distributions.  And there is only one IRA involved.  So, the first distribution in March satisfied the 2019 RMD.  The second distributoin was $20k, came out in July and was “re-paid” back into the IRA in August; I assume this is the only one eligible for rollover.  The other five took place August – October, and it sounds like all of those will need to come back OUT of the IRA, with earnings. Again, no IRS relief for this mistake?

Submitted by Alan - IRA critic on Tue, 2019-11-05 19:24

  • Yes, you are correct. But the IRS does not have statutory authority to waive the one rollover rule, so there is no solution. Since all these distributions being used as short term loans were apparently being rolled back to the same IRA account from which they were distributed, it appears that this IRA custodian’s staff is totally clueless with respect to the one rollover limitation.
  • If this person encounters this situation again in the future, note that distributions that can be returned in 60 days should be added up and taken as a single distribution. For example, if 50,000 is needed and taken as one distribution rather than 3, the 50,000 can be rolled back at different times before the 60 day deadline because the one rollover limit is measured by the number of distributions, not the number of rollover contributions. Further, there are certain self certified exceptions to missing the 60 day deadline that one might qualify for (Rev Proc 2016-47), but there is no flexibility on the one distribution rollover limit per 12 months. 

Submitted by David Mertz on Tue, 2019-11-05 20:20

It appears that several of these distributions are still within the 60-day rollover window so these could be deposited into a Roth IRA as conversion contributions.  Roth conversions are disregarded with respect to the 1-per-year rollover limitation.  These conversions would still result in the same amount of taxable income for 2019 but future growth would be tax free after 5 years from the beginning of the year for which the owner first made a Roth IRA contribution and would generally be better than just leaving the money to grow in a taxable account.

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