Advanced Underwriting Consultants

Question of the Day – December 8

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax questions posed by producers.  Here’s the question of the day.

Question: My client took a distribution from her IRA 55 days ago, and intended to re-deposit the money under the 60 day rollover rule.  She’s having trouble coming up with the cash for the deposit.  May she take another distribution from her IRA and use it for the rollover deposit—effectively extending the rollover deadline for another 60 days?

Answer: No, not if the money for the second distribution is coming from the same IRA as the first distribution.  The plan for the subsequent 60 day rollover would violate the one rollover per year rule.

Here’s a quote from IRS Publication 590, which describes how the rule works:

Generally, if you make a tax-free rollover of any part of a distribution from a traditional IRA, you cannot, within a 1-year period, make a tax-free rollover of any later distribution from that same IRA. You also cannot make a tax-free rollover of any amount distributed, within the same 1-year period, from the IRA into which you made the tax-free rollover.

Under the facts above, the taxpayer is planning to take two distributions from the same IRA within a 12 month period.  Only one of those distributions may be rolled over under the rule quoted.

However, the answer would potentially be different if the taxpayer has three separate IRAs.  To illustrate the point, let’s call these IRA-1, IRA-2 and IRA-3.

Say the taxpayer took a distribution of $50,000 from IRA-1 55 days ago.  The taxpayer does not have the cash on hand to roll over the distribution within the 60 day deadline, so the taxpayer takes another $50,000 distribution from IRA-2 now.  The taxpayer deposits the $50,000 into IRA-3 and treats the deposit as a rollover of the $50,000 taken from IRA-1.

If the taxpayer is able to find enough cash within a short time after that rollover, the taxpayer can complete the $50,000 rollover of the distribution from IRA-2 into IRA-3.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.