2015 IRA Distribution Being Rolled Over in 2016? 4 Facts You Must Know | Ed Slott and Company, LLC

2015 IRA Distribution Being Rolled Over in 2016? 4 Facts You Must Know

By Sarah Brenner, IRA Technical Expert
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The rules for rolling over IRA distributions can be complicated. These rules can become especially challenging at the end of the calendar year. If you are taking a distribution from your IRA at end of 2015 and considering a roll over that may not be completed until 2016, here are four facts you will want to know.

  1. You can do it! Surprisingly, IRA owners sometimes have doubts as to whether a distribution taken in one calendar year can even be rolled over in the next. There is no problem with this! Nothing prevents you from taking an IRA distribution in December of 2015 and rolling it over in January of 2016 as long as you follow the rollover rules that always apply. You will want to be especially careful of the 60-day rule for rollovers during this busy time of year.
     
  2. Report the rollover for 2015. Another concern you may have is how to handle on your tax return a distribution from your IRA in 2015 that you roll over in 2016. Do you report this transaction on your 2015 tax return or wait for 2016? Here is how it works. The IRA custodian will report the distribution from your IRA on a 2015 IRS Form 1099-R. The rollover will be reported by the IRA custodian on a 2016 IRS Form 5498. You will report the distribution and the rollover on your 2015 federal income tax return.
     
  3. Apply the one rollover-per-year rule correctly. Don’t fall for a common misunderstanding of the one-rollover-per-year rule. The rule says that you may only roll over one distribution from all of your IRAs in a one-year period. The one rollover per year does not apply on a calendar year basis. It begins with the date you receive the distribution you later roll over. A new calendar year does not mean you have a clean slate. If you take an IRA distribution on December 15, 2015 and roll it over in January of 2016, you may not roll over another IRA distribution until December 16, 2016.
     
  4. Add in the rollover when calculating your 2016 RMD. Here is an important rule to remember if you are taking required minimum distributions (RMDs). If you take a distribution in 2015 and complete a rollover of those funds in 2016, you must include the amount rolled over in your December 31, 2015 fair market value when calculating your 2016 RMD. This rule prevents IRA owners from avoiding RMDs by having an IRA balance of zero on December 31. You cannot escape your RMD by emptying out your IRA in December and then rolling over the funds in January.

Keep in mind that if you are establishing a new IRA with your 2016 rollover, your IRA custodian will not be reporting any 2016 RMD information to you. If you are rolling over to an existing IRA, the RMD amount the IRA custodian reports to you will be less than your actual RMD. This is because the IRA custodian reports RMD information to an IRA owner based on the December 31 prior-year balance with no adjustments. You must make the adjustment yourself and add in the amount rolled over to the December 31 balance to calculate your correct 2016 RMD amount.

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