60 Day Rollover after Direct Rollover

Submitted by Craig McKinley on Thu, 2023-08-17 14:45

I received a tax free direct rollover from a lump sum pension distribution to my personal IRA this year when I turned 65. It was a direct transfer – I did not receive the funds. I then did a $50,000 distribution from that IRA in order to put a down payment on a new home. I was prepared to pay the income tax on that distribution. But my current home sold faster than I expected and I am still within the 60 day rollover period. Can I put $30,000 back into my IRA and reduce my tax exposure to $20,000 on my distribution? Also, I had $19,000 in earned income this year before I retired, can I still make a $15,000 (total) tax deductible IRA contribution later on (next April when I file for 2023) to my and my wife’s IRA?



Submitted by Alan - IRA critic on Thu, 2023-08-17 16:05

As long as you have not used your one allowed 60 day rollover for your IRAs within the last 12 months, you can roll back all or any portion of the 50,000 distribution within 60 days. You would only owe tax on the portion not rolled back. You can definitely make an IRA contribution (including spousal)using your earned income, but the deduction for that depends on the amount of your MAGI if you participate in a workplace retirement plan even if the participation is only one day in 2023. If your spouse is not a participant it’s possible that your spouse could take the deduction if you cannot. You will have to determine if your MAGI is too high or not.

Submitted by Craig McKinley on Thu, 2023-08-17 16:25

Thank You! One more question – I took the $50,000 distribution in two withdrawals, one day apart, $5,000 then $45,000.  It was my fat finger mistake on my IRA website. Does this effect the one time rollover rule?

Submitted by Alan - IRA critic on Thu, 2023-08-17 16:32

Yes, you can only roll back one of those distributions, so you would choose the 45k distribution. This will not affect you unless you wanted to roll back more than 45k.

Submitted by David Mertz on Thu, 2023-08-17 16:55

In addition to rolling the $45,000 distribution back to a traditional IRA, you have the option to convert the $5,000 distribution to a Roth IRA since Roth conversions do not count toward the rollover limit.  There is really no downside to doing the Roth conversion since you can take a distribution of the converted funds later and be no worse off (and might be better off) than had you not done the Roth conversion.

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