Is this a 60-day Rollover? Did not take distribution
On 1/11/21, I tried to call Fidelity to transfer my Fidelity Rollover IRA to Money Market Funds, and could not get anyone on line. While on hold, I was able to find a way to take $74K where they would send me the check, as I knew I had 60 days to get it back in. They liquidated my $74K in investments and on 1/15/21 sent the check. I received the check on 1/21/21, and called them immediately before opening it, as I decided I could not take the money because I also had $45K sent to me by another custodian.
When I called Fidelity on 1/21/21, they told me to just destroy the check, and they could put it back in my account with no tax implications, and since it was a Thursday, to check back on Monday to open a NEW IRA for my non-managed Money Market, and move the money to the new account.
On Friday morning, 1/22/21, I checked my account, and found that I received a message saying they stopped the first check and were reissuing. I immediately called, and was told by the woman that, yes, there was an error there, but she saw the notes, and she would have it corrected. I asked if it mattered whether the new IRA I opened was called a Traditional or Rollover IRA, and she said it didn’t matter.
That afternoon, the first person I spoke to, Bill, called me at about 4:45 to tell me that was all wrong, and they would HAVE to use it as a 60-day rollover. THAT was my concern, because that would mean that the $45K that I took from the 2nd custodian would now be taxed, and I had fully intended to roll that back within the time limit. I only learned about the one-per-12 months rule while waiting for the Fidelity check.
Since the money that I “took” was NEVER taken out of the Fidelity coffers, since they actually used the check number they originally issued to put it back in my original account, I argue that it should NOT be deemed a 60-day rollover, even though I initiated it.
Fidelity is saying since I initiated the withdrawal, it does not matter.
Is there anything I can do about this with the IRS to NOT classify this as a 60-day rollover, so that I can put my $45K back in as my one 60-day rollover?
Permalink Submitted by Alan - IRA critic on Thu, 2021-02-11 16:30
You should be doing direct trustee transfers to avoid these 60 day rollover limits. Where is the 45,000 now, did you roll it over yet? If not, you could opt to pay taxes on the smaller one and roll over the larger one, and you could also convert the smaller one to a Roth IRA since you will owe taxes on the 45000 anyway. The conversion will avoid any 10% penalty on the smaller one, and will keep your funds in a more beneficial class of IRA than a traditional IRA. You will still owe the tax, but the result is better than just keeping that money in a taxable account.
If you already rolled over the smaller distribution, then you cannot roll over the larger one, but similar to the above, you could convert it, avoid the penalty and preserve the funds in a Roth IRA. Of course, you would have a 74k distribution to report.
Yet another option for the 74k if you are working and have a 401k or similar plan is to see if the 401k will accept an IRA rollover. These also do not count with respect to the one rollover limit, AND it would avoid any taxes on the distribution.
Permalink Submitted by David Mertz on Thu, 2021-02-11 16:56
And to address your specific question, you received a distribution as soon as the check came under your control, so this is indeed a distribution and putting it back into a traditional IRA would be a rollover of the $74k. As Alan said, your best option if you have not yet rolled over the $45k distribution would be to either roll it over to a Roth IRA as a Roth conversion or roll it over to a qualified retirement plan like a 401(k).