CAN A CLIENT WHO HAS AN IRA ACCOUNT AND A SEPARATE ROTH ACCOUNT ROLL OVER THESE FUNDS WITHIN 60 DAYS TO ANOTHER SEPARATE IRA AND ROTH ACCOUNT WITHOUT PENALTY WHEN THE CHECK IS MADE TO HIM AND HE ENDORSES IT OVER TO THE OTHER COMPANY
THIS ROLLOVER OCCURRED IN SEPT 19 AND HE NEVER TOOK POSSESSION OF THE MONEY HE SIMPLY ENDORSED THE CHECK OVER TO THE NEW TRUSTEE–WOULD THAT MAKE A DIFFERENCE?IF IT DOES NOT, HOW SHOULD HE PROCEED TO DEAL WITH THIS?
THE CLIENT RECEIVED TWO 1099R: IRA $65945.56 CODE 7 — ROTH $52899.41 CODE THE IS 67 YEARS OLDYOUR ADVICE IS APPRECIATED
Which one was rolled over first, or were they rolled over to the new accounts on the same day?
One last thing to check then before undertaking the painful correction. Have client call his current IRA custodian and ask them if a Form 5498 is going to issued to report any contributions to either IRA for 2019. They will likely issue these by the end of May, which the IRS will then match up to the respective 1099R and see that two distributions were rolled over. Assuming they will issue a 5498 for each account, and because the rollovers were done on the same date, client has his choice which one to withdraw as an excess IRA contribution. If he treats the Roth as the excess contribution, he will probably not be taxed on the Roth distribution since his Roth IRA is qualified and tax free if his first contribution to a Roth IRA was prior to 2015. He could then do modest Roth conversions this year and the next couple years if he wants to replace the lost Roth balance, but such conversions would be taxable.
AS LONG AS THE ROTH WAS ATLEAST 5 YEARS SINCE FIRST CONTRIBUTION, HOW WOULD YOU SUGGEST HE WITHDRAW THE EXCESS CONTRIBUTION?WOULD THE EXCESS BE THE ENTIRE AMOUNT AT THE CURRENT CUSTODIAN WHEN ROLLED OVER 8/19AND COULD THE CURRENT CUSTODIAN RE-CATEGORIZE THE ANNUITY AS NON-QUALIFIED PRIOR TO SENDING THE 5498.SHOULD ANYTHING BE DONE WITH THE PREVIOUS CUSTODIAN?
If he chose the Roth as the excess, and purchased a new Roth annuity, the annuity would have to be distributed as an excess contribution. Whatever the cash value of it is on the day of distribution would be reported on a 1099R. If that value was higher than the premium, tax would be owed on the difference. If lower, no tax. Yes, if the carrier reclassified the annuity as NQ, they would still report this action on a 1099R in the same manner. It would be treated as if he surrendered the annuity and then purchased a new NQ annuity with the funds. I assume the carrier confirmed that they would be issuing a 5498 reporting a rollover contribution. As for the prior custodian, they won’t change the 1099R they already issued if they issued a check payable to client. Very unfortunate situation.
Permalink Submitted by Alan - IRA critic on Thu, 2020-03-05 14:44
No. A check payable to him would be a distribution reported on a 1099R, and client can only roll one such distribution in a 12 month period. This would be two distributions (one from TIRA, one from Roth), so only one of them could be rolled over, and the other one would be subject to possible tax and penalty. When moving IRAs between custodians, it should be done by direct transfer, as those are unlimited and not even reported on a 1099R. Client would generally have the new custodian order the transfers from the old custodian. NOTE: A conversion does not count as a rollover for these purposes, but I think in this case there is no conversion from TIRA to Roth, just a transfer of both accounts to a new custodian.