ROLLOVER RULES AND REPAYMENT OF CRDs: TODAY’S SLOTT REPORT MAILBAG | Ed Slott and Company, LLC

ROLLOVER RULES AND REPAYMENT OF CRDs: TODAY’S SLOTT REPORT MAILBAG

By Ian Berger, JD
IRA Analyst
Follow Us on Twitter: @theslottreport


 

Question:

Hello Ed,

I have faithfully read the Slott Report for a long time. I must thank you for sharing your knowledge. However, it is finally my turn to write you with a question.

I was quite fortunate to work for a company with an employer 401(k) plan. So, I faithfully contributed for years and now have both 401(k) and Roth 401(k) — principal and earnings — to retire on. My employer’s plan rules state that after I retire, I must take it all or nothing.

The plan’s fund manager informs me I can make a direct transfer of all my pre-tax 401(k) funds into my personal IRA and all my Roth funds into my personal Roth IRA. The manager says this can be done with no taxes due.

Please confirm that by doing such transaction, I will not infringe on the IRS rules which limit direct transfers to only one per year. And, that no taxes or tax withholding will be required.

Thank you much,

Jack


Answer:

Dear Jack,

Congratulations on your retirement! The IRS once-per-year limit applies only to 60-day rollovers — not to direct rollovers like you’re doing. (The rule also only applies to IRA-to-IRA or Roth IRA-to-Roth IRA rollovers — not to 401[k]-to-IRA rollovers.) So, you don’t need to worry about the once-per-year rule.

You won’t be taxed when you do the direct rollovers, but you will have to pay taxes on one or both IRAs when you withdraw from them down the road. Also, 20% withholding for income taxes doesn’t apply when you do a direct rollover.


Question:

Do you have to pay back all of the $100,000 in 3 years to get any of the tax benefit? What if you fall short of paying it all back? Is it ALL still taxed?

Jackie


Answer:

Hi Jackie,

It sounds like you took a coronavirus-related distribution (CRD) from your IRA or company plan in 2020.

If your CRD came from pre-tax finds, it is fully taxable. However, taxes on the CRD will automatically be spread out evenly over your 2020, 2021 and 2022 tax returns — unless you make an election with your 2020 tax return to have the entire amount taxed in 2020.

You do have 3 years to repay all or part of the CRD. But even if you only repay part, you’ll recover taxes already paid (or offset taxes due in the future) on that portion. So, there’s definitely a tax benefit to paying even part of the CRD back.

 


Content Citation Guidelines

Below is the required verbiage that must be added to any re-branded piece from Ed Slott and Company, LLC or IRA Help, LLC. The verbiage must be used any time you take text from a piece and put it onto your own letterhead, within your newsletter, on your website, etc. Verbiage varies based on where you’re taking the content from.

Please be advised that prior to distributing re-branded content, you must send a proof to matt@irahelp.com for approval.

For white papers/other outflow pieces:
Copyright © [year of publication], [Ed Slott and Company, LLC or IRA Help, LLC - depending on what it says on the original piece] Reprinted with permission [Ed Slott and Company, LLC or IRA Help, LLC - depending on what it says on the original piece] takes no responsibility for the current accuracy of this information.

For charts:
Copyright © [year of publication], Ed Slott and Company, LLC Reprinted with permission Ed Slott and Company, LLC takes no responsibility for the current accuracy of this information.

For Slott Report articles:
Copyright © [year of article], Ed Slott and Company, LLC Reprinted from The Slott Report, [insert date of article], with permission. [Insert article URL] Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.

Please contact Matt Smith at matt@irahelp.com or (516) 536-8282 with any questions.

 

Find members of Ed Slott's Elite IRA Advisor GroupSM in your area.
We neither keep nor share your information entered on this form.
 

I agree to the terms and services:

You may review the terms and conditions here.