IRA & Roth IRA distributions and 60 day rollover rule
Client taking money out of both a traditional IRA and a Roth IRA to fund a home purchase (no other funds available at this time). Outside funds to put back money into both of these accounts will be available in 60 days. Can I put funds back into both the Roth IRA and IRA? I am reading that the 60-day distribution rollovers are only allowed once in a 12-month period across all accounts which is confusing.
Permalink Submitted by David Mertz on Wed, 2023-10-25 19:36
Only one of these distributions is permitted to be rolled back to the same type of account that it came from. However, because Roth conversions don’t count toward the one-rollover-per-12-months limitation, the client could roll over the Roth IRA distribution and convert the traditional IRA distribution to Roth. Of course the Roth conversion would be taxable, but at least everything would be back in a retirement account. Also, rollovers from a traditional IRA to a qualified retirement plan like a 401(k) are not subject to the limitation, so if the client has a qualified retirement plan at an employer that will accept the rollover, the client could roll the traditional IRA distribution over to that employer’s plan.
Permalink Submitted by Alan - IRA critic on Wed, 2023-10-25 19:47
Only one IRA to like kind IRA rollover is allowed within a 12 month period. Therefore, the only solution to this problem is to roll the Roth funds back to the Roth IRA, which is the one allowed rollover. The TIRA distribution could be rolled into an accepting employer (non IRA) plan since a rollover between an IRA and a qualified plan is not subject to the limit. And if the employer plan will not accept the IRA rollover, the client might consider converting the TIRA distribution to a Roth IRA as conversions are also not subject to the limit. Tax will be due on the conversion but no penalty and no future RMDs on Roth IRAs. All this is assuming that client can meet the 60 day deadline, which is often not possible when real estate closings are involved. This was a risky decision.
Permalink Submitted by Robert Witt on Thu, 2023-10-26 17:32
You indicated the only solution was to put money back into the Roth, however in this instance, it is better to put back in the TIRA given a unique tax situation this year (Highest tax bracket). I would prefer to not use up the Roth funds for this, but putting funds back in the TIRA is actually better both short and long term. Just confirming, this is an option, correct?
Permalink Submitted by Alan - IRA critic on Thu, 2023-10-26 18:00
Yes, that’s an option. The Roth was suggested if both distributions were to be rolled over using one of the suggested two alternatives. But if the alternatives are not attractive, then it becomes a simple choice of which account would receive the one rollover allowed, with the variables being the amount of the respective distributions and the tax impact (saving Roth space v current year tax bill). This choice has the elements of a “reverse” Roth conversion (depleting the Roth but not the TIRA).