60 day rule and over age 70 1/2 | Ed Slott and Company, LLC

60 day rule and over age 70 1/2

A client distributed $4700 on July 29, 2014 for cash flow purposes. She since has sold her home. I have suggested paying back the $4700 ASAP before the end of the 60 day period as she now has sufficient funds and this will save the $4,700 from taxation.

Upon calling the brokerage firm, the rep informed us that since she was over 70 1/2 she could not do this rollover. I have never heard that before and cannot find anything online to suggest that there is an age limit to the 60 day rollover rule and wanted clarification.

He also suggested that also she needed to leave the funds out as it was needed for her RMD. However, I felt that the RMD was already satisfied. She had a retirement annuity with the firm and the RMD was taken out earlier this year. For ease of access to money, the firm had moved $35,000 over to an IRA in May of this year. So when the rep looked at RMD he only showed this transaction and indicated she needed to have RMD for the IRA for this year. But I feel that since the IRA was not in existence on 12/31/2013, no RMD is needed from it. In addition, she did do the RMD on the 12/31/13 balance of the annuity which included the IRA funds.

Thank you for any assistance in the two matters.

  • There is no age limit restriction on rollovers, but the first IRA distributions in a year must be applied to the RMD for all non Roth IRAs. Until the RMDs for all are completed, distributions cannot be rolled over because they are RMDs. However, IRA RMDs can be aggregated. That means that the total RMD can be satisfied in any combination from all of the client's non Roth IRA accounts, whoever holds them. If the RMD for 2014 had been totally satisfied before 7/29, then client can roll the 4700 back to this IRA or ANY other IRA she chooses to open elsewhere. There is also a one rollover rule per IRA account within 12 months that must be considered, but that is apparently not the cause of the custodian's resistance. Again, RMDs are not required to be distributed from every IRA account as long as the RMD for all accounts is distributed from any of those accounts. Custodians should not be requiring an RMD to be taken from each account if the client assures them that the total RMD for all their IRAs has been satisfied.
  • While the 12/31/2013 balance of all non Roth IRAs is used to determine the 2014 RMD, this account is still subject to the RMD distribution rules if the total RMD had not been fully satisfied. For example, funds could have been transferred into this account from other IRA accounts, and that may have been the case for the 35,000 transfer. For a direct transfer, the RMD rules are not applicable because a direct transfer is NOT a distribution and is not reported on a 1099R, so they can be ignored. However, it is not clear if this was transfer was done directly or not.
  • If client reached 70.5 in 2013, flexibility with the 2013 RMD could also complicate this situation. Please advise if that was the case.
  • Rollover must be completed by 9/27 to be a valid rollover.
  • If client does roll a distribution over that included an RMD amount, the RMD is still considered satisfied, but the rollover becomes an excess contribution to the IRA that must be corrected to avoid excise taxes.

Thank you for your thorough answer.  The client is age 81 and the transfer was a direct transfer as the firm simply moved it from her annuity with them to a new IRA account.I knew it didn't sound correct on the phone and I knew our days were limited so hated giving up the weekend but didn't have time to research. But will get client back with firm on phone Monday to get it done by 9/27. 

 

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