Ira rollover at year end

I have a client that wants to take a large sum out of his IRA near year end and then roll it back in within 60 days. He will receive a 1099r for the distribution. How will he justify not having to pay tax since the amount rolled in won’t go in until the following year?



If the IRS asks about the reported rollover because the 5498 will be issued a year later, he can send a copy of the account statements showing the dates of distribution and the rollover contribution.



could he also take a second distribution in the following year to pay off the first distribution and force it to be taxed in the later year/  For instance, he needs the money in 2015 but wants to be taxed for it in 2016, if he takes a second distribution in 2016 and rolls money back in within 60 days to satisfy the 2015 distribution will that work?



The second distribution could be used to complete a 60 day rollover of the first distribution, but the second distribution cannot be rolled over due to the one rollover limit. The first distribution will be reported as a rollover and there would be no 2015 tax, but the second distribution would be taxable in 2016 since it cannot be rolled over.Or– the second distribution could be converted to a Roth IRA and then recharacterized back to a TIRA if the entire distribution was not needed for other purposes. A conversion does not count as a rollover for purposes of the one rollover limitation.



is there a time limit on when the second distribution would need to be converted?  we don’t usually think about conversions in the context of the owner receiving the funds and holding for a period of time before converting.  Is it just by year end?



Second distribution could be converted within 60 days since the conversion would be done as an indirect rollover rather than by trustee transfer. This is a “work around” if a taxpayer did not understand the new rollover restriction but it was brought to their attention before they tried to roll the second distribution over. But once they rolled over the second distribution (not a conversion) in 12 months, they are stuck and there is no way to get the funds back into a TIRA.



Add new comment

Log in or register to post comments