Yes, a person is permitted to take a distribution from his IRA and roll it over to another (or the same) IRA within 60-days. But only one rollover is allowed within a 12-month period. That means no rollovers for the next 365 days. This one-rollover-per-year rule only applies to IRA-to-IRA and Roth IRA-to-Roth IRA rollovers. It does not impact plan-to-IRA or IRA-to-plan rollovers. Also, note that inherited IRAs can never be rolled over. They must move via direct trustee-to-trustee transfer.
I understand the temptation to use IRA dollars during the 60 days as a “short-term loan.” The problem is that 60 days can sneak up on a person. In some cases, people don’t even know there is a 60-day rollover requirement. In the last couple of weeks alone, problems with the 60-day rollover window have arisen on a number of occasions. Two of which are included here:
PLR 202033008 – A couple planned to sell their existing home and buy a new one. Their real estate agent advised the husband to use money from his IRA to pay for the new house, and then redeposit the IRA dollars after the old home sold. Problem was…the real estate agent never told the couple about the 60-day rollover rule. The old home sold after the 60-day period, and the husband tried to replace the withdrawn funds in his IRA. No dice. No fix available. The IRS denied a waiver of the 60-day rule. The husband was forced to pay the taxes on the distribution and an additional 10% early withdrawal penalty if he was under 59 ½ years old. (Not to mention the cost of the rejected private letter ruling, which could run as high as $10,000-plus.)
The Helpful Father – This story is painful, and stems from a real-life phone call I received. An adult son wished to buy a house, and Dad wanted to help. They agreed that Dad would take money from his IRA and allow Son to use the dollars. Son would replace Dad’s IRA distribution when his old house sold. (Sound familiar?)
Both acted in good faith, but “good faith” does not authorize circumvention of the rules. Dad took an IRA withdrawal and loaned Son the dollars. Son bought the new house, and when his old house sold, he dutifully handed Dad back the borrowed money…over $400,000! Problem was…you guessed it…it was after the 60-day rollover period. No fix. Dad must eat the taxes on the distribution. (We were able to return $30,000 as that was Dad’s 2020 RMD amount and could be rolled back by August 31, but we could not return anything else. We even tried to designate $100,000 as a “Coronavirus-related distribution” to bypass the 60-day rollover window, but were unable to shoehorn Dad into the definition of an “affected individual.”)
Be extraordinarily careful with 60-day rollovers! Consider a direct transfer instead. If you go down the rollover path, know the rules as they are hard and fast. Seek competent advice, watch the calendar, and do not allow the moon to set on your rollover.
I am an Ed Slott Master Elite trained IRA Specialist and I would like to help you. If you have any questions regarding this article or would like to schedule a complimentary consultation please call my office at 845-627-8300. My Client Service Coordinator Christina will be happy to set up a convenient time so I can help.Warm Regards,
Beth Blecker CEO
Eastern Planning Inc.
Follow Beth Blecker on Twitter: @EasternPlanning
“Ed Slott’s Elite IRA Advisor Group” is solely an indication that the financial advisor has attended training provided by Ed Slott and Company. Ed Slott is not affiliated with Royal Alliance Associates, Inc. Securities and advisory services offered through Royal Alliance Associates, Inc. Member FINRA/SIPC. Additional advisory and financial planning offered through Affiliated Advisors, Inc. Insurance services offered through Eastern Planning Inc. Listed entities not affiliated with Royal Alliance. Reprinted from The Slott Report, 8/31/2020, with permission. Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article. Copyright © 2019 Ed Slott and Company, LLC.