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SEP/IRA Distributions


Guest Jacki

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Have a broker telling a client that they can take a plan distribution and have 60-days to return the funds to the account before it's really considered a taxable event. In other words, it's like a short-term loan, even though loans are prohibited. Is he really saying that under the rule of one rollover per year, he can take out the funds, apply the 20% automatic withholding, and return the full amount prior to the end of the 60-day period and have it qualify as the once-per-year rollover? Comments? Suggestions?

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If the money is in a SEP, the broker is correct. Once contributions are made to a SEP, from that point on, the money is treated just like an IRA. And, you can take money from an IRA once a year, hold it for 60 days, then roll it back into the same or another IRA. Just don't hold it for 61 days, 'cause it then is taxable and not eligible for rollover back into an IRA.

Also, distributions from IRAs are not subject to the mandatory 20% withholding. Therefore, the person could "play" with their entire IRA for 60 days.

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  • 2 weeks later...

Generally yes. But special rules do not allow for SIMPLE-IRA rollovers during the 2 year hold period and for SARSEP contributions distributed before the employers determination that the ADP test is satisfied. Direct transfers, are however, permitted during this period in the case of a SIMPLE-IRA.

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