There are TWO types of rollovers. One is an indirect rollover where the funds are given to the taxpayer and within 60 days the money is reinvested or rolled over into the same or a differant IRA. Such rollovers are limited to only ONE per 12 month period if rolled over into the SAME IRA. All subsequent rollovers into the SAME IRA are NOT recognized as a rollover and are taxable and subject to the 10% penalty if the taxpayer has not reached age 59 1/2 or older. If federal tax was withheld the taxpayer would have been required to obtain funds from elsewhere to replace the tax witheld otherwise it would be only a partial rollover.
The other type of rollover is a DIRECT rollover or TRANSFER or Trustee to Trustee rollover where the taxpayer did NOT receive the funds but instead the funds were transferred directly from one IRA or trustee or bank to another. There is NO limit on the number of such rollovers but SOME IRAs have a limit of one rollover per year.
RMD or required minimum distributions may NOT be rolled over. Failure to withdraw the RMD every year after reaching age 70 1/2 or older is subject to a 50% penalty of the RMD amount. Funds may be rolled over from a 401(k) plan to an IRA and from an IRA to a 401(k) plan IF the 401(k) plan allows it. Some people believe in making rollovers EVERY year. I plan to charge them EXTRA for that and tell them to STOP making rollovers.
I have one 71 year old client who makes three rollovers every year and could not explain WHY.
WHAT is our responsibility as tax preparers if a client performs MORE than one indirect rollover regarding the SAME IRA during a 12 month period? Are we to TAX all such rollovers after the first one and assert the 10% penalty if appropriate?
I will appreciate all comments and especially any corrections of my thinking in this matter.
The other type of rollover is a DIRECT rollover or TRANSFER or Trustee to Trustee rollover where the taxpayer did NOT receive the funds but instead the funds were transferred directly from one IRA or trustee or bank to another. There is NO limit on the number of such rollovers but SOME IRAs have a limit of one rollover per year.
RMD or required minimum distributions may NOT be rolled over. Failure to withdraw the RMD every year after reaching age 70 1/2 or older is subject to a 50% penalty of the RMD amount. Funds may be rolled over from a 401(k) plan to an IRA and from an IRA to a 401(k) plan IF the 401(k) plan allows it. Some people believe in making rollovers EVERY year. I plan to charge them EXTRA for that and tell them to STOP making rollovers.
I have one 71 year old client who makes three rollovers every year and could not explain WHY.
WHAT is our responsibility as tax preparers if a client performs MORE than one indirect rollover regarding the SAME IRA during a 12 month period? Are we to TAX all such rollovers after the first one and assert the 10% penalty if appropriate?
I will appreciate all comments and especially any corrections of my thinking in this matter.
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