Direct IRA Transfer then subsequent partial rollover
Client did a seven figure 401(K) direct transfer to an IRA. Now wants to pull $40,000 for <60 days and "put it back." Can I assume I need to do a rollover to a new IRA with a different custodian than holds the balance of the IRA and avoid taxation? Can I then do a custodian to custodian direct transfer to consolidate within the next year if so inclined?
Permalink Submitted by Alan - IRA critic on Tue, 2022-04-12 18:25
Because only one 60 day IRA to IRA rollover is allowed for a 12 month period, client cannot have taken an IRA distribution in the last 12 months that was rolled over, or they will not be able to take the current distribution and roll it over. If client qualifies for a rollover, the distribution can be rolled back to the distributing IRA account or to a different account, whichever is the most convenient. Direct transfers between like kind IRAs can be done without limit and they are not reported on a 1099R or client’s tax return. I would make sure client understands the one rollover limit for 12 months as the IRS has been cracking down on the use of IRAs for temporary loans.
Permalink Submitted by Jeffery Acheson on Tue, 2022-04-12 20:54
Balance was in 401(k) for twenty years. Just did a direct trustee to trustee transfer to IRA in March. Pulled $40,000 from IRA in April and wants to put it back in late May. As your read your comments (and I appreciate the technical caveats, very helpful) it appears he is fine, correct?
Permalink Submitted by Alan - IRA critic on Tue, 2022-04-12 23:21
Yes, he is OK as long as he did not rollover a prior IRA distribution in the last 12 months from any of his IRAs. If he did not do a prior IRA to IRA rollover in the last 12 months he is OK to do this one. He will then be locked out from doing another one for the 12 months that follows the distribution of the 40,000 that is being rolled over.
Permalink Submitted by Jeffery Acheson on Wed, 2022-04-13 01:29
….for your usual outstanding and timely help!