Reversing a 60 Day Indirect Rollover
Hello,
In May 2024, my client executed a 60-day indirect rollover to their Roth IRA. In October 2024, the same client executed a 60-day indirect rollover to their traditional IRA. The client’s CPA now wants to remove the Roth IRA rollover as excess and keep the traditional IRA rollover as is. I do not believe this is allowed but wanted to get your thoughts on this.
Permalink Submitted by Alan - IRA critic on Tue, 2025-04-29 16:50
The CPA is incorrect.
The Roth conversion cannot be recharacterized and was not an excess contribution. The conversion was also not counted with respect to the one rollover limitation, so the 60 day rollover of the distribution done last October is allowable. There is no action needed other than to properly report the conversion on Form 8606 for 2024 and the 60 day rollover on lines 4a and 4b of Form 1040. Only the conversion will be taxable.
However, client cannot roll over any other TIRA or Roth IRA distribution taken within the 12 months since the 2024 distribution that was rolled over. If client needs to move IRA funds, a direct transfer should be used to avoid the one rollover limitation.
Permalink Submitted by Katie Cottom-McMillan on Tue, 2025-04-29 17:31
The transaction that happened in May 2024 was a distribution from a Roth IRA and rolled over within 60 days to another Roth IRA (it was not a conversion). In October 2024, he took a distribution from his traditional IRA and rolled the funds over within 60 days to his traditional IRA. I believe the client needs to remove the amount that was rolled over to his traditional IRA in October 2024. Also, I am pretty sure the CPA cannot select to reverse the 60 indirect rollover that occurred in May 2024.
Permalink Submitted by Alan - IRA critic on Tue, 2025-04-29 18:36
With the clarified info, the Roth to Roth rollover is valid and cannot be reported as the excess contribution because it occurred first and was not an excess contribution. The TIRA to TIRA rollover was not allowed and you are correct that this distribution is taxable and subject to penalty on the 2024 return. The disallowed rollover is treated as an excess TIRA contribution to the extent that the rollover exceeded the amount that legally could be contributed to the IRA.
If the 2024 return was either timely extended OR filed by 4/15, the client has until 10/15/2024 (the extended due date) to remove the excess contribution with allocated gain or loss to avoid the 6% excise tax for 2024. If there is a gain on the return, it will be taxable in 2024, the year the excess contribution was made.
Again, client needs to move funds by direct transfer to avoid these infractions.
Permalink Submitted by Katie Cottom-McMillan on Tue, 2025-04-29 19:59
Thank you as always!