Tax free rollover once per year rule

[RightOn]

Taxpayer moved $30,000 from an IRA to a saving account. 14 days later, he moved $20,000 from the saving account to another IRA (let's call it IRA-B). Another 7 days later, he moved the remaining $10,000 in the saving account to IRA-B too.

I am pretty sure the $20,000 has no problem since the whole process has been completed within 60 days.

Did the $10,000 violate the once per year tax free rollover rule?

[RightOn]

Publication 590 says: “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.”

I think the key is the bold part. The taxpayer has moved all the $30,000 to the saving account in one time. And then he separated the rollover to the other IRA account in two different times, $20,000 and $10,000. Does the $10,000 counted as 'later distribution' as said in the bold part?

[Burke]

I think he is good. It was not a "later distribution" since it was all taken out at one time, and both amounts were re-deposited well within the 60-day time frame.

[RightOn]

Thank you Burke.

I have always wondered if an explanation should be attached to the tax return if a taxpayer had a tax free rollover like this, or in similar situation such as withdrawal from a ROTH IRA of which the distribution is the original contribution by the taxpayer so it is not taxable. Is it advisable to attach account statements to the tax return to prove that the distribution should be tax free? Or shall we just wait until the IRS question it then provide the information?

I have always just kept the proof in the client's file in case it is needed in the future. But my experience in recent years is that the IRS is getting more often to question such tax free distribution and it takes much more time to put together a reply to their inquiry afterward. So I am considering to attach all the proofs to the tax return from now on in order to avoid the hassle down the road.

Does anyone have a different opinion?

[ChEAr$]

Wonder no longer. Attach no explanation; that tends to confuse IRS personnel.

[TaxGuyBill]

This doesn't address your problem, but ...


A recent tax court case said one IRA rollover per year PERIOD. Doesn't matter if it's from different accounts or whatever.

However, the IRS just released an announcement yesterday that said they won't be pushing that issue until 2015.

http://www.irs.gov/pub/irs-drop/a-14-15.pdf