Withdraw and repay – in 60 days – across years end
I just did a direct transfer of an old 401k into a new traditional IRA. I want to pull about 20k (in three installments) as an early withdrawal in late December 2007 and then repay the IRA within 60 days – in early February 2008 with one single deposit.
1) Is this considered a taxable distribution for 2007?
1a) If not, how do I indicate on my taxes that the rollover in 2008 offset the withdrawal in 2007?
1b) Am I increasing my audit potential?
2) Can I ‘rollover’ the distribution back into the same IRA without penalty?
3) Does this max out the withdraw/rollover abilities of this IRA for the next 12 months?
4) Are the number of withdrawals ‘unlimited’ as long as there is only a single deposit (rollover) within 60 days of the first withdrawal?
I am under the 59 1/2 threshold and the withdrawals do not meet any of the exception criteria that I know of.
Permalink Submitted by Alan Spross on Thu, 2007-12-20 04:36
You will have to take just a single withdrawal this month in order to accomplish this. You are only allowed one rollover within 12 months, so you could only roll one of the distributions over, and the other two would remain taxable.
Completing the actual rollover in the following year is no problem as long as it is done within 60 days. Just report the distribution as a rollover on line 15b of your FOrm 1040. But you cannot do another rollover for the next 12 months due to the one rollover rule.
A rollover is routine and will not increase your audit potential.
Permalink Submitted by billy coleman on Thu, 2007-12-20 14:10
Thanks for the reply. So it is the withdrawal that is considered the rollover and not the re-deposit.
So, to make the other two rollovers, I would first need to setup two new IRA accounts and do a direct transfer into each of the new IRAs. Then I could do a withdrawal from each with a 60 day redeposit.
It is ok to do a distribution from and a ‘rollover’ back into the same IRA vs into a new IRA account? Can you do a rollover into a new IRA without having the 20% deducted up front?
Sorry for the plethora of questions, but my attempt to educate myself via the internet leaves much to be desired. Not an area where you want to learn from personal experience!
Permalink Submitted by Al Fry on Thu, 2007-12-20 16:28
I’m not sure the fees on the additional IRAs would be offset by some little additional gain by making three w/ds insread of one, as Alan suggested.
Permalink Submitted by Alan Spross on Thu, 2007-12-20 22:27
A rollover back to the same IRA is considered the same as a rollover to a different IRA account. When you roll funds over to a new IRA account, you cannot do another rollover from EITHER account for 12 more months. Of course you can do unlimited direct transfers, and you could create new accounts by transfer to allow you to make rollovers from each account. As Al indicated, be aware of the cost of various small account fees.
As for IRA distributions, there is NO mandatory withholding similar to the 20% from employer retirement plans. You should ask that no withholding be applied because some IRA custodians use an automatic 10% if you don’t specify what you want or that you don’t want any withholding.[/list]
Permalink Submitted by billy coleman on Thu, 2007-12-20 23:10
[quote]When you roll funds over to a new IRA account, you cannot do another rollover from EITHER account for 12 more months.[/quote]
[i]That [/i]explains why the emphasis on the direct transfer into a different IRA account!
I do agree that it would be simpler to do a single w/d instead of creating multiple IRAs with direct transfers. However, “haste makes waste” and I already did a small (3k) distribution without understanding the ramifications of that choice. I was only concerned about the tax implication of a distribution in 2007 with a payback in 2008. I figured I could afford to be in error on a 3k amount.
It was not till [i]much [/i]later that I even knew that there was a once-per-12 limitation! I might have been less hasty to pull the 3k! Ahh, the price of ignorance!!
Thanks for taking your time to clarify my confused state and educating me. You have saved me from making a BIG error on a much larger sum!