On Thursday, April 23, 2015 at 5:49:38 PM UTC-4, Leon wrote:
On 4/23/2015 2:14 PM, DerbyDad03 wrote:
On Thursday, April 23, 2015 at 1:04:39 PM UTC-4, Leon wrote:
On 4/23/2015 9:50 AM, DerbyDad03 wrote:
Allow me to clarify one point:
I originally stated: "...the IRS allows an individual to
withdraw funds from an IRA (or other qualified retirement plan)
and not pay any taxes or penalties as long as the money is
replaced within 60 calendars days..."
To be clear, instead of "replaced within 60 calendars days" I
should have said "deposited into a qualified retirement account
held by the same individual within 60 calendars days".
Since the 60 day rule was put into place to facilitate
rollovers, there is no stipulation that the funds must go back
into the same account they were withdrawn from, they just need to
go back into a qualified retirement account owned by the same
individual.
The IRS also doesn't stipulate that they *can't* go back into
the same account, thus allowing for what could be considered "60
day loan" from a person's IRA once every 12 months.
"If" the owner of the traditional IRA does not take possession of
the money and lets one institution transfer IRA funds, FBO of the
owner, to another Institution as the same type of IRA, there is no
limit of ONE movement of money per year.
This is true, but then it wouldn't be considered a "withdrawal"
(actually a "distribution") it would most likely be considered an
"direct rollover" or a "trustee-to-trustee transfer" All of those
terms tend to get used interchangeably, but they actually have
different meanings.
Actually a trustee to trustee transfer. And yes they do have different
meanings and why I did not call it a roll over or withdrawal.
In addition, transfers from one IRA to another IRA within the same
institution are not considered rollovers and are therefore not
subject to the One-Rollover-Per-Year rule.
Correct, but to be clear, a Rollover is where the owner actually takes
possession of the money and puts it into another qualified IRA account.
This is where the wording on the various IRS pages can be confusing. Depending on what page you read - and in what context - one could argue that you are correct and one could argue that you are wrong. In an effort to keep this friendly, I'll simply point out a few of the many contradictions on the irs.gov pages.
Let's start with the basic definition of a Rollover from the IRS.
http://www.irs.gov/Retirement-Plans/...ee/Definitions
"Rollover - A rollover occurs when a participant directs the transfer of the money in his or her retirement account or IRA to a new plan or IRA."
There is no mention of taking possession or not taking possession, so let's call it "unclear" for the moment. Now consider these 2 scenarios in light of that IRS definition:
Joe quits his job at Company "A" and gets hired at Company "B". He then "directs the transfer" of the funds in his "A" 401(k) to his "B" 401(k). If he were to take possession of the funds, the 401(k) plan would be required to withhold 20% in federal taxes. However, if he requests a "direct rollover" (see the IRS definition of a direct rollover below) he does not take possession yet it is still considered a rollover per the IRS definition. He "directed the transfer" by requesting a "direct rollover".
The same situation would occur if Joe quit/retired/was laid off and "directs the transfer" of the funds in his "A" 401(k) to an IRA via direct rollover. He did not take possession and it is considered a rollover by definition..
Then there's the following from the IRS. Note that they consider both a Direct Rollover" and a "Trustee-to-Trustee transfer" to be a means to "complete a rollover" without the individual taking possession of the funds. Does that mean that these types of movements are rollovers? Based on the title of the section "How do I complete a rollover?" one could argue Yes.
http://www.irs.gov/Retirement-Plans/...-Distributions
"How do I complete a rollover?
Direct rollover - If you're getting a distribution from a retirement plan, you can ask your plan administrator to make the payment directly to another retirement plan or to an IRA. Contact your plan administrator for instructions. The administrator may issue your distribution in the form of a check made payable to your new account. No taxes will be withheld from your transfer amount.
Trustee-to-trustee transfer - If you're getting a distribution from an IRA, you can ask the financial institution holding your IRA to make the payment directly from your IRA to another IRA or to a retirement plan. No taxes will be withheld from your transfer amount.
60-day rollover - If a distribution from an IRA or a retirement plan is paid directly to you, you can deposit all or a portion of it in an IRA or a retirement plan within 60 days. Taxes will be withheld from a distribution from a retirement plan (see below), so you'll have to use other funds to roll over the full amount of the distribution."
But - and this is a big but - let's see what they say he
http://www.irs.gov/Retirement-Plans/...-Per-Year-Rule
"Direct transfers of IRA money are not limited"
"This change won't affect your ability to transfer funds from one IRA trustee directly to another, because this type of transfer isn't a rollover (Revenue Ruling 78-406, 1978-2 C.B. 157). The one-rollover-per-year rule of Internal Revenue Code Section 408(d)(3)(B) applies only to rollovers"
So, depending on which section of irs.gov you read, it's not not easy to figure out what they define as a rollover, although one might want to give a higher weighting to a Revenue Ruling than a FAQ. ;-)