One Year IRA Rollover Question
Question regarding the one year rollover rule I’m hoping to get some clarity on. Outlined below is the situation –
Assets distributed January 7th 2020 from IRA and received in the mail January 13th 2020. Deposited into IRA as a rollover January 24th.
Assets distributed January 5th 2021 and received in the mail January 17th 2021. Deposited into IRA as a rollover January 28th.
Will this satisfy the one-year rollover rule? I understand the date received in the mail is the starting point (January 13th, 2020) but am not sure if the the date used for the second rollover is date of distribution or date of receipt. Thank you for the help!
Permalink Submitted by Alan - IRA critic on Tue, 2021-05-25 00:39
The one year period is measured between the receipt date of the distributions. The date of the rollover contribution does not matter, so in this case more than one year passed between the distribution receipt dates and the second rollover is allowed. A custodian does not know what the receipt date is.
Permalink Submitted by Ryan Freberg on Tue, 2021-05-25 15:24
Alan thank you for the detail. Will the IRS ask for any information to verify the dates of receipt? Is there a way I can add this information or is this more of a honor system?
Permalink Submitted by Alan - IRA critic on Tue, 2021-05-25 18:17
Effectively, the custodians provide whatever limited enforcement of the one rollover limitation there is. The IRS would only know of a violation if they received two 1099R forms for different IRA accounts that were both reported as rollovers, or if the taxpayer became subject to a complete audit of their return for any number of reasons. That said, 12 days is abnormally long even given Covid’s effect on mail service, but the chances of the IRS inquiring about distribution dates is about nil unless your history shows a very high % of rollovers or other abnormal activity.
Permalink Submitted by Maria Ku on Thu, 2021-05-27 18:24
How the Once-Per-Year Rollover Rule is MisunderstoodPosted: 26 May 2021 09:29 AM PDTBy Ian Berger, JDIRA AnalystFollow Us on Twitter: @theslottreportOne of the cardinal sins you can commit with an IRA rollover is to run afoul of the IRS “once-per-year” rollover rule. Violating that rule triggers a taxable distribution and the 10% early distribution penalty if you are under age 59 ½. Plus, the forbidden rollover would be treated as an excess contribution subject to an annual 6% penalty unless timely corrected. Unlike missing the 60-day rollover deadline, violating the once-per-year rule is a mistake that cannot be fixed.But the once-per-year rule is often misunderstood.As background, remember that the once-per-year rule only applies to traditional IRA-to-traditional IRA rollovers or Roth IRA-to-Roth IRA rollovers. The rule does not apply to company plan-to-IRA rollovers, IRA-to-company plan rollovers, or traditional IRA-to-Roth IRA rollovers (Roth conversions). Since 2015, the IRS has said that the once-per-year rule applies to all of a person’s IRAs – not to each IRA account separately. Traditional and Roth IRAs are combined when applying the rule. You can always get around the once-per-year rule by doing a direct transfer instead of a 60-day rollover.Often, the once-per-year rule is expressed as disallowing more than one rollover in a one-year period. But that’s not how the rule really works. The rule actually says you can’t do a rollover of an IRA distribution made within one year of a prior distribution that was rolled over. So, the rule prevents you from doing more than one rollover of distributions made within a one-year period; it doesn’t necessarily prevent you from doing more than one rollover within a one-year period.Example 1: Jackie received a traditional IRA distribution on November 1, 2020 that she rolled over to another traditional IRA on December 1, 2020. If Jackie receives a second traditional IRA (or Roth IRA) any time before November 1, 2021, the once-per-year rule prevents her from doing another 60-day rollover of that second distribution to another like IRA.Example 2: Let’s say Jackie receives the second distribution on October 15, 2021 (within one year of the first distribution on November 1, 2020). She would still violate the rule even if she delays rolling over the second distribution until December 2, 2021 (more than one year after the first rollover on December 1, 2020).Example 3: Now assume that Jackie receives the second distribution on November 10, 2021 (more than one year after the first distribution on November 1, 2020). She would not violate the once-per-year rule if she rolls over the second distribution on November 25, 2021 (within one year of the first rollover on December 1, 2020). In that case, doing two rollovers within a one-year period (on December 1, 2020 and November 25, 2021) is allowed.