60 Day Question

[bzorc]

An IRA holder who is less than age 59 1/2 takes a distribution from the IRA. Can this person, within the 60 day period, return the distribution to the IRA in the form of stock (at FMV) instead of cash? I can't find anything in the IRA answer book that deals with this scenario. Would the person pay capital gains (or take a capital loss) on the stock that is transferred to the IRA, if allowed?

Thanks for any replies.

[BPickerCPA]

You must return the asset that was removed. If cash is taken, cash must be returned.

[bzorc]

Interesting! Talked to an IRS Manager after I posted this, and they informed me that the return of stock to replace the cash would be acceptable. I guess, from a logic point of view, that the person putting the stock into the IRA would lose the basis on the stock, and when removed would be taxable at ordinary rates (versus the new 15% gain rate), and any possible capital loss would be eliminated.

Barry, do you have a cite for your answer? Thanks for your response!

[Appleby]

See---

IRS publication 590

IRC 408(d)(3)(A)

Lemishow v Commissioner, 110 TC 346 (1998)

[jevd]

Ask the IRS for a written confirmation and see what happens. Do you know the % of incorrect answers the IRS gives over the telephone in an average tax season??

[mbozek]

In additon to barrys correct analysis, there is no econiomic rationale to transfer stock which is subject to a maximum tax rate of 15% to an IRA which is subject to ordinary income taxation and the inability to use a capital loss to reduce capital gains. Also the sale or exchange of stock between the IRA and owner is a prohibited transaction under IRC 4975 which will disqualify the entire IRA.