IRAs &Roth IRAsIRA-to-IRARollovers &TransfersQuestions & Answers
Purpose:The intent of this brochure is to provide an overview ofrollovers, transfers, and conversions between traditional IRAsand Roth IRAs. It does not cover SIMPLE-IRAs and rolloversfrom or to qualified plans and section 403(b) plans. Differentbrochures cover these subjects. Since rollovers and transfershave very important tax implications, we strongly advise youto consult with your tax advisor.IRA-TO-IRAIf I am paid funds from my IRA, what arethe tax consequences?The general rule is that the funds paid to you will be includedin your income and taxed at ordinary income tax rates.What is a rollover and why would I want to rollover funds from an IRA into another IRA?A rollover is an exception to the general rule that an IRAdistribution is taxed. The movement of funds in a rollover is asfollows: A person withdraws funds from his or her IRA andthen redeposits these funds into another IRA or the same IRA.Even though you were paid the funds, you will not have toinclude the amount received as gross income if the rules summarized in this brochure are met. That is, you avoid payingcurrent taxes on the distribution amount, plus the 10% excisetax which would apply if you were not yet age 591/2 (unless aspecial exception applied). These recontributed funds plusrelated earnings will continue to compound or grow on a taxfree basis and will not be taxed until a future taxable distribution occurs.When do I qualify to roll over fundsfrom an IRA to another IRA?If you receive a distribution from your IRA, you can roll overthese funds by redepositing them into an IRA if: (1) the fundsare rolled over within 60 days after the day the funds arereceived, and (2) you have not rolled over a previous distribution from any IRA within the last 12 months. The 60-day period begins on the day after the day you receive a distribution.
Is it permissible to roll over a requiredminimum distribution?No. The law expressly provides that a required minimum distribution is not eligible to be rolled over. An excess contribution occurs if there is an attempt to roll over a required distribution. The tax law also provides that the first distribution(s)from an IRA subject to the RMD rules are the required distribution(s).Can a waived 2020 RMD be rolled over?Yes. The CARES Act as enacted on March 27, 2020, waives allRMDs for 2020. Some IRA accountholders had already beenpaid in 2020 what they thought was their RMD. Due to thewaiver it was not their RMD and therefore it was not an RMDand is eligible to be rolled over. The other standard IRArollover rules must be met unless the IRS issues guidancegranting relief.What is the time limit for making a rollovercontribution?You generally must make the rollover contribution by the 60thday after the day you receive the distribution from your traditional IRA or your employer’s plan.Example. You received an eligible rollover distribution fromyour traditional IRA on March 16, 2020, that you intend torollover to another traditional IRA. To postpone including thedistribution in your income, you must complete the rolloverby May 15, the 60th day following March 16.When does the 60-day rollover period end?The IRS has never formally stated that a person has until thefollowing business day to make his or her rollover if the 60thday ended on a Saturday, Sunday or legal holiday. Therefore,the conservative approach is to complete the rollover on orbefore the 60 days, without extension.Has the IRS issued new guidance if a personmisses the 60-day limit?Yes, the IRS authorizes you to furnish a self-certificationrollover form to the IRA custodian if you failed to meet the 60day requirement because of an event beyond your control.The IRS may then ask you for additional information so the IRScan verify that you qualified to make the rollover.
Does the IRS have the authority to grant relief ifa person misses their 60-day rollover deadline?Yes. The law requires the IRS to grant relief (extend the time tomake a valid rollover) when equity and fairness requires it. IRSguidance provides there are three ways to obtain this relief.You may write the IRS and submit your request for relief. Youmay file a special form with your IRA custodian certifying thatyou are making a late rollover. In some cases if the mistakewas the sole fault of the IRA custodian, automatic relief isgranted.Is the once per 12-month rule or 365-day ruleper IRA plan agreement rule?No. It is on a per person and a per distribution basis. Only onedistribution within a 365-day period is eligible to be rolledover.What is the consequence if I would roll over twoIRA distributions within a 12-month period?The distribution rolled over second would be an excess contribution since it is ineligible to be rolled over. If it was distributed from a traditional IRA, it would be taxable unless someportion was the return of basis. The annual 6% excise taxapplying to excess contributions would apply unless corrected (i.e. withdrawn) by the appropriate deadline. Any attempted rollover contribution not meeting any one of the rolloverrules would be an excess contribution.What amount of an IRA distribution must I rollover?You do not have to roll over the entire distribution. You canroll over as much or as little as you want. Anyportion you do not roll over is taxable immediately, and maybe subject to IRS penalties if the distribution is a premature(pre-age 591/2) withdrawal.Am I permitted to make multiple rollover contributions of my one IRA distribution?Yes, if you withdraw 12,000 on January 15, 2020, you maymake a rollover contribution of 5,000 on January 27, arollover of 4,000 on February 10 and a rollover contributionof 3,000 on March 3, 2020.
Will withholding apply?Any distribution from an IRA requires an income tax withholding election, since the distribution transaction is a taxableevent if you do not recontribute the funds within 60 days. Youmay elect to have NO withholding. Absent such an election,the custodian/trustee is required to withhold 10% of the distribution.What are the reporting requirements for arollover?The IRA custodian which distributes the IRA funds will generate an IRS Form 1099-R to report that a distribution has beenmade. If the funds are rolled over to an IRA, the new custodian or trustee will report the rollover contribution on Form5498. Even if you roll over the entire amount of the funds, youwill have to properly report this on your income tax return.You will explain the distribution is not taxable since you rolled it over.How do I treat a rollover on my tax return?You would report the total or gross amount of the IRA distribution, and the taxable amount. If the entire distribution isrolled over, the taxable amount is zero. The taxable amount isgenerally that portion not rolled over.May I roll over the funds to an IRA Ialready have?Yes. You do not need to open a new IRA. The funds may bedeposited into an existing IRA.Do special rollover or repayment rules apply toa disaster distribution?Yes. You should review IRS Form 8915 and consult with yourtax adviser. In general, the once per year rule and the 60-dayrule do not apply to a disaster distribution. Rather, a person isgranted three years to repay or rollover such distribution.If I die, does my beneficiary have anyrollover rights?If the sole beneficiary of your IRA is your spouse, then he orshe may elect to treat your IRA as his or her own IRA. If yourspouse is one of your designated beneficiaries, but he or sheis not your sole beneficiary, he or she is ineligible to treat yourIRA as his or her own IRA. However, such spouse beneficiaryis eligible to roll over to an IRA his or her share, but not anyrequired distribution.
A non-spouse beneficiary is ineligible to rollover inheritedIRA funds which have been paid to him or her. A nonspousebeneficiary is eligible to transfer inherited IRA funds intoanother inherited IRA.Are rollovers and transfers subject to the annualIRA contribution limit?No. There is no maximum contribution limit for a rollovercontribution or for a transfer contribution.I Am I ineligible to make a rollover ortransfer because I am older than age 701 2?No. You can establish an IRA by making a rollover or transfercontribution even though you are older than age 701/2. You stillmust comply with the required minimum distribution rules.What property must I roll over?You must roll over into the new IRA the same property (cash,stocks, real estate) which you withdrew from your old IRA.There is no authority — as there is with qualified plan distributions — for you to roll over the proceeds of the sale of theproperty.What is a transfer?A transfer of funds in your traditional IRA from one trusteedirectly to another, either at your request or at the trustee’srequest, is not a rollover. The funds are never paid or distributed to you. Because there is no distribution to you, the transfer is tax-free. Because it is not a rollover, it is not affected bythe 1-year waiting period required between rollovers.How is a transfer actually made?A transfer form should be completed by both IRA custodiansor trustees. The IRA trustee or custodian losing the funds (i.e.the funds which you want transferred) will want items for itsfile to substantiate why it did not prepare a Form 1099-R. First,it will want your written instruction to transfer specific IRAfunds. Second, it will want the new or receiving IRA trustee orcustodian to certify that you have established an IRA with thenew institution.The current IRA custodian/trustee will issue a check to thenew IRA custodian/trustee for the benefit of Mary Doe’s IRA.This check will be issued only after you instruct the currentIRA custodian in writing that you wish to transfer the funds.The right to transfer funds is contractual and does not existunder all IRA agreements. You need to check your plan agree-
ment to see if there is a right to transfer funds. There may wellbe a charge associated with this special service.The new IRA trustee or custodian will want the remittingcustodian/trustee to certify that the funds were IRA funds. Thenew trustee may also want to know the “history” of the fundsfor conduit IRA rollover purposes and for required minimumdistribution purposes.What are the IRS reporting requirements for atransfer?At this time, there are no reporting requirements. Only distributions to the accountholder or a beneficiary must be reported. With a transfer, there has been no such distribution.Is it permissible to transfer a requiredminimum distribution?Yes. You will be responsible to make sure that your requireddistribution is made by the appropriate deadline from the newIRA custodian.Is there a limit on IRA transfers?The governing law does not impose a limit on thefrequency of moving IRA funds via transfer. Your IRA planagreement, as sponsored by your IRA custodian or trustee,may contain limits.Will there be withholding from an IRA transfer?No. There is no taxable distribution.IRA-TO-ROTH IRAHow do I convert my traditional IRA?You can convert amounts from your traditional IRA to a RothIRA by using any of the following three methods. The firstmethod is the standard rollover. You can receive a distributionfrom a traditional IRA and roll it over (contribute it) to a RothIRA within 60 days of the distribution. The second method isa trustee-to-trustee transfer. If permissible, you may direct thecustodian/trustee of your traditional IRA to transfer an amountfrom the traditional IRA to the custodian/trustee of your RothIRA. The third method is an internal movement. You direct thecustodian/trustee of your traditional IRA to transfer an amountfrom your traditional IRA to your Roth IRA.Whatever conversion method is used, the custodian/trustee of the traditional IRA will prepare a Form 1099-R toreport the distribution, and the custodian/trustee of the RothIRA will prepare a 5498 to report the conversion contribution.
Why might I want to convert my traditional IRAto a Roth IRA?You may find it advantageous to incur the tax consequencesof a present distribution in order to qualify to earn the right tohave no taxation when the earnings are ultimately distributedfrom the Roth IRA.What are the consequences of receiving adistribution from a traditional IRA and“converting” the distribution to a Roth IRA?In general, the amount distributed to you from yourtraditional IRA will be included in your income in the year ofreceipt and will be subject to income taxes for that year. The10% premature distribution excise tax, however, will not beowed even if you are younger than age 591/2.A distribution withdrawn from a traditional IRA and movedto a Roth IRA is not counted for purposes of applying the onceper 12-month rollover rule.ROTH IRA-TO-ROTH IRAIf I receive a distribution from one Roth IRA,may I roll over the funds to a second Roth IRA?Yes. The rules which govern a “Roth-to-Roth” rollover are generally the same as for a rollover from one traditional IRA toanother traditional IRA. You must comply with the 60-day ruleand you are only entitled to one rollover within a 12-monthperiod as discussed earlier.Although funds you withdraw from a Roth IRA may not betaxable since you might be withdrawing basis, if you do notcomply with the rollover rules, you lose the right to rolloversuch funds into a Roth IRA and possibly have the futureincome be tax-free when distributed.May I transfer funds from a Roth IRA to anotherRoth IRA?Yes. Transfers between Roth IRAs are permissible. The sameprocedures to be used for traditional IRAs should be used.except a transfer form for Roth IRAs must be used.The information provided in this brochure is not intended to be legalor tax advice. You should consult your attorney or tax advisor for information that relates to your specific circumstances.IRA #109 (4/20) 2020 Collin W. Fritz and Associates, Ltd.
The other standard IRA rollover rules must be met unless the IRS issues guidance granting relief. What is the time limit for making a rollover . was the sole fault of the IRA custodian, automatic relief is granted. Is the once per 12-month rule or 365-day rule per IRA plan agreement rule? N