60 Day Rollover

Looking for a clarification on 60 day rollover rule. Client retired May 2017 at age 57, requested a partial direct rollover from former employer 401k plan to his TIRA. (Check was made payable to IRA Custodian). He is currently receiving a monthly distribution from 401k to take advantage of age 55 exemption redemptions from 401k.

He is purchasing a new home and current home scheduled to close 2 weeks after new home purchase. Therefore looking to remove 300k from TIRA and put funds back within 60 day window from sale proceeds of current home. I know there is risk of current home closing not completing in time but client well aware of this risk. I’m of the understanding the direct rollover from 401k plan to his TIRA has no bearing on his ability to take advantage of the 60 day rollover rule to take out the 300k and roll back within 60 days to avoid the taxes and penalty. I don’t believe his ongoing redemptions from 401k bring an issue either but wanted to verify.



You are correct. None of the 401k distributions have any effect on the IRA one rollover rule. Note that the one rollover rule limit applies to the number of IRA distributions, so in this case it is always better to take MORE out of the IRA than client thinks he will need because he can always roll the amounts back in unlimited partial 60 day rollovers, but if he takes out too little and needs more, then only ONE of those distributions can be rolled back. Yes, client is taking a big risk when a 60 day rollover is subject to a real estate closing date, as he cannot count on the IRS extending the 60 day deadline if something goes wrong. Lots of people have been burned by taking this gamble, and he is risking both tax and 10% penalty.  At least he should delay the distribution until the last possible day for best use of the 60 day time.



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