Indirect Rollover Mistake – How to fix?

Submitted by Emily Hancock on Wed, 2024-02-07 01:24

We needed $100k for less than two weeks during a house purchase. My husband took distributions from his two traditional IRAs on the same day, at the same time (or within a few seconds of each other), from the same trustee (Vanguard), one for $75k and one for about $25k. The funds were received within seconds of each other and then were replaced within the 60-day limit, again at the same time and back to the same accounts. He could have consolidated the two IRAs within Vanguard with a couple of clicks, and then made a single withdrawal of the full amount, but he didn’t think to do so at the time – he had read and misunderstood the statement that “all of a person’s IRAs are treated as one” for purposes of the one-year indirect rollover rule.

We’ve started looking into filing our taxes and are worried about a violation of the one-year rollover rule. Is this an issue given that both distributions were made at the same time on the same day (from accounts that could have been combined with a simple transfer), and the rollovers occurred at the same time too? If so, are we able to re-classify the $25k rollover as an early distribution and pay the associated taxes and fees, or is there some chance that the IRS decides the $25k was the valid rollover and the $75k is the early distribution? Thanks to anyone who can help!



Submitted by Alan - IRA critic on Wed, 2024-02-07 02:05

  • It’s a violation of the one rollover rule and VG apparently did not catch it before accepting the second rollover. Therefore, the second distribution is taxable and must be removed from the IRA that received it as an excess contribution, except to the extent that he qualifies for a 2023 TIRA contribution that he did not make. Further, because two 1099R forms were issued, one for each IRA account, reporting a rollover of the total amount is sort of a red flag for the IRS.
  • Any chance for damage control?  Probably not, but just in case, what was the date of these distributions, did the home purchase qualify as a “first home”defined as a home purchase when neither of you owned a home in the past 2 years, and did the purchase the distribution was intended to pay for fall out so that the purchase could not proceed? Just fishing here to see if there is any damage control possible.
  • If not, there should be no problem treating the 75k rollover as valid and the 25k rollover as the excess contribution.

 

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