early distribution indirect rollover

L1: early distribution indirect rolloverDear Sirs,
I have taken an early distribution from my IRA that is less than 60 days oldand I am planning to either send back the funds to the original distributingIRA account or create a new indirect IRA with a new custodian. Will this action only restrict rollovers/distributions of the the original Ira a/c for 365 days if funds areredeposited there. What ifthenew a/c is established with a new custodian for these funds, does this only restrict the funds at the new a/c or also the originating a/c? Lastly,does this action create problems with rollovers/distributions from my 401k or any other IRAs that I establish that are outside the funds/accounts in question, as I am thinking about setting up a 72tfrom a new rollover out of my 401k to a new IRA.
Thanks,
Bob
2005-11-09 19:18, By: Bob K, IP: [71.254.84.52]

L2: early distribution indirect rolloverCheck out IRS Pub. 590 at http://www.irs.gov/publications/p590/ch01.html#d0e3135 and look under rollovers. The language allmost answers your questions in teh order asked. It states_

Waiting period between rollovers. Generally, if you make a tax-free rollover of any part of a distribution from a traditional IRA, you cannot, within a 1-year period, make a tax-free rollover of any later distribution from that same IRA. You also cannot make a tax-free rollover of any amount distributed, within the same 1-year period, from the IRA into which you made the tax-free rollover.
The 1-year period begins on the date you receive the IRA distribution, not on the date you roll it over into an IRA. Example.You have two traditional IRAs, IRA-1 and IRA-2. You make a tax-free rollover of a distribution from IRA-1 into a new traditional IRA (IRA-3). You cannot, within 1 year of the distribution from IRA-1, make a tax-free rollover of any distribution from either IRA-1 or IRA-3 into another traditional IRA.
However, the rollover from IRA-1 into IRA-3 does not prevent you from making a tax-free rollover from IRA-2 into any other traditional IRA. This is because you have not, within the last year, rolled over, tax-free, any distribution from IRA-2 or made a tax-free rollover into IRA-2. 2005-11-10 04:46, By: Gfw, IP: [172.16.1.73]

L2: early distribution indirect rolloverGordon, will you comment on one additional fact that may help in this situation? How will a “trustee-to-trustee transfer” of “rollover funds” come into play?
While it’s true that only one “Rollover” is allowed per 365 days, there is no limit to the number of “Trustee-to-trustee transfers” per 365 days.
Does the restriction on taking distributions from an IRAfunded by”Rollover dollars” follow the money that hasmoved to another IRA by the “Truste-to-trustee” method? Put another way, will a “Trustee-to-trustee transfer” remove the restriction on “Rollover dollars?”
Hope my question is clear. And I hope I haven’t taken too long writing this so I don’t create a new string.
Jim2005-11-10 08:57, By: Jim, IP: [70.184.1.35]

L2: early distribution indirect rolloverThe rollover has no impact on the ability to transfer.
However, from the example is a rollover is done, you have to watch both the IRA where the funds came from and the IRA where the funds are going to.
If I rollover 10,000 from A to B, then the rolloevr restirctions apply to A & B, but nothing stops the ability to do a direct transfer of the funds in eiter A or B – I’ll be this was at least as clear as the IRS example.2005-11-10 15:54, By: Gfw, IP: [172.16.1.73]

L2: early distribution indirect rolloverI believe Jim was asking about a situation where a/c a accepted a rollover after which a was direct transferred to IRA b. The transfer does not count, but within the same 12 months b was rolled to c. Did the transfer wipe out a/c “a” identity as a recipient of a rollover or is cstill considered a making the rollover to c a violation? Good question, I think it is a new account and this is OK, partially because there is no 1099R tracing mechanism to ever detect the original source.
One other comment on these rollovers. There is apotential trap in that an employer plan to IRA transfer physically done as a direct transfer is actually considered a distribution and rollover per 1099R reporting requirements. That means that the receiving IRA now has received a rollover and for the next 365 days any rollover out of that account would become a second rollover. The danger is that the impression is that since the the IRAwas funded by a direct transfer, that thefirst rollover out is OK, so some may proceed with that second rollover.2005-11-12 23:16, By: Alan S., IP: [24.116.165.157]

L2: early distribution indirect rolloverThanks to all who replied. Priorto a recentIRA distribution which I intended to and did place back in the same IRA, as a rollover in less than 60 days, the custodian of my IRA confirmed to me on more than one occassion that this would meet rollover requirements. These conversations occurred both before the distribution and before the rollover replenishing the funds. The IRA was funded this year by a direct transfer from my 401k and from reading youradvice, the rollover described above would not be eligible. Apparently, the Custodian did not account for the originating source of the funds in my IRA when they wrongly advised me. As I was misled by the broker, is there recourse to have the distribution and subsequent rollover fixed to not effect this years taxes and to leave the funds in the IRA without penalty. I have yet to contact them about this matter. Note no withhholding was transacted on the distribution which supportsthat my intent was to rollover within 60 days and to not keep funds distributed.
Thanks Again
Bob 2005-11-17 12:13, By: Bob, IP: [71.254.84.52]

L2: early distribution indirect rolloverHi Bob:
Thanks for your latest post and the additional information, specifically “The IRA was funded this year by a direct transfer from my 401k … ”
Since this is the case I think you are OK. The “Direct Transfer” from your K-plan to the “Rollover IRA” doesn’t count for the 365-day rule. When you redeposited the distribution into the RO IRA, that started a 365-day clock. If you like you can do one or multiple “Direct Transfers” from one IRA to another without any problems with the 365-day rule. But if you should again take distributions from this RO IRA within the 365-days of the redeposit, then you have to keep the funds out of the IRA and pay taxes.
Reading over your original post and the responses, I think we assumed that you had moved the funds from your K-plan to the RO IRA by actually taking possession of the funds, depositing into your checking account, then within 60-days rolling them into the IRA. By the way, had this been the case you would have had to make up the mandatory 20% withholding for Federal Taxes from other funds to avoid a taxable event. Since you used the “trustee-to-trustee” method, I believe you are in the clear.
Jim2005-11-17 12:32, By: Jim, IP: [70.184.1.35]

L2: early distribution indirect rolloverJim,
Thanks for your positve update. It’s always nice to receive good news and a relief to not have to go through all the mechanisms/impact that would have resulted otherwise.
regards,
Bob2005-11-17 13:55, By: Bob K, IP: [71.254.84.52]

L3: early distribution indirect rolloverDear Jim,
Anotherpoint is that my 401k issued a check payable to the IRA Custodian (no withholding), which was mailed to me and then I sent it on to the IRA.Gather this does not effect your reply.
Thanks again.2005-11-17 14:08, By: Bob K, IP: [71.254.84.52]

L3: early distribution indirect rolloverPlease see my last post to the original string.
Jim2005-11-17 14:20, By: Jim, IP: [70.184.1.35]

L2: early distribution indirect rolloverBob:
Glad I could help you breathe again, and here’s one last thought. Don’t know if you have ever done a 60-day rollover of an IRA, but here’s what you can expect in the reporting arena.
Since you have a distribution from an IRA, the custodian is required to issue a Form 1099-R, which is reported to the IRS. Not to worry since you put 100% (no more and no less) of the distribution back into the RO IRA. Report the total distribution on the front of Form 1040 for IRA distributions, block “A” of line 14 or 15 or something close to that. Then in block “B” of the same line, which is the far right column, enter a zero (0) for “Taxable Amount.” Then next year Form 5498 will be issued by the custodian showing the input to the IRA (rollover), and the system will balance and all is happy.
Unless you are really familiar with and feel totally confident with these procedures, I suggest that you get with a CPA now and get him / her up to speed on your situation.
As to your other short note, which I’m not sure how it got moved away from this string.The check was made payable to the new custodian, “FBO: Bob K”and mailed to you.This is quite common. Since you cannot negotiate the check, you do not have “constructive receipt” of the funds and therefore it does not start the 365-day clock. You are just part of the “trustee-to-trustee transfer.”
Good luck.
Jim2005-11-17 14:18, By: Jim, IP: [70.184.1.35]

L2: early distribution indirect rolloverDear Jim,
Again I must thank you for the tax headsup. I had a seperate earlier distribution which I kept, with withholding from same IRA.Gather 1040 lines willshow gross distributions from IRA on one line and net on other with difference being rollover. Explaination, as rollover within 60 days of a distribution.
Thanks, Bob2005-11-17 14:39, By: Bob K, IP: [71.254.84.52]

L2: early distribution indirect rolloverBob:
As more little tid-bits of your situation come out, specifically that you have taken two distributions from the IRA and rolled one back in, please do the following:
1. Go to GFW’s first post and use the link to IRS Pub 590, and do some study.
2. Hire a CPA experienced with 72(t) and other aspects of IRA’s
Jim2005-11-17 15:41, By: Jim, IP: [70.184.1.35]

L2: early distribution indirect rolloverJust a technical clarification to Bob, in case he is preparing his own tax return. TOTAL GROSS IRA DISTRIBUTIONS are reported on the 1040 in box 15a (indented), and the TOTAL TAXABLE IRA DISTRIBUTIONS are reported in box 15b (far right column). Similarly, TOTAL GROSS AND TAXABLE PENSION & ANNUITY DISTRIBUTIONS are reported in boxes 16a and 16b respectively. I always attach a schedule detailing the accounts from which all distributions are made (and respective amounts and dates) and the accounts into which the distributions were transferred (and dates). I attach copies of the 1099-Rs, even though they are only required to be attached if federal income taxes were withheld. I also attach copies of the applicable statements that show the distributions and transfers of the accounts from which and to which the funds were moved. I’ve never had any questioned because I’ve attached al of the applicable supporting documentation, rather than taking a chance that the IRS will request supporting information 18-24 months later.2005-11-18 23:10, By: dlztaxes, IP: [4.175.9.231]

L2: early distribution indirect rolloverThanks to DLZ for tax reportingadvice and all of your generous replies.
2005-11-20 14:07, By: Bob K, IP: [71.254.84.52]