IRA 60 Rollover Rules

[Guest fdyer]

If you take a distribution from your IRA, and before the 60 days you deposit the funds back in, but the check bounces and you don't find out until after the 60 days are over, is there any way to correct it besides a private letter ruling?

[ERISAnut]

Will the custodian redeposit the check? If so, then it would appear to be a non-issue.

[John G]

Whose check bounced ? Why did it bounce? Your post is not clear.

If you took the funds, then subsequently wrote a check on your account to redeposit and it bounced.... you are in worse shape. If the check you received out of your IRA was the check that bounced - that is a completely different situation. Often when a check bounces, the institution submits it a second time - so the problem may be resolved.

FOR ALL OTHER READERS - this is another reason not to use the 60 day rule. Murphy lurks in these transactions.

[GBurns]

If it was his/her check being used to return the money to the IRA and it bounced, a redeposit after the 60 days would still be after the 60 days so Why would it be a non-issue? Wouldn't that depend on when the Custodian records the receipt of the funds?

If the last day of the 60 days was April 8, but the Custodian received the check on April 7 and recorded that as the date but the check bounced after being deposited on April 10 with notice being sent to the Custodian on April 15. The Custodian or bank does not do automatic redeposit so the check is sent back snail mail to the Custodian who receives it April 18 and then redeposits it on April 20. How will the Custodian record the transactions especially the date of receipt.

This is clearly after the end of the 60 day window. But it could very well depend on whether or not the Custodian changes the date of receipt because of reversing the original entry. A slightly worse situation would be if the transactions occurred at the end of a month and overlapped into the next month. In that case the entries most likely would be reversed.

Think of what would happen if the check bounces again and now cannot be further redeposited. Can it be claimed that the payment was even made just because a check was received? Does it not matter if the check is good?

[John G]

A point of clarification. Some checks bounce because they were drawn upon an account with insufficient funds. That's the shame on you version. But many checks bounce back and forth between two institutions for other reasons.... fussing over endorsement, signature match, stale check date, illegible, etc.

Case 1: I was looking over the shoulder of my banker one day and asked what were all the entries for my account ~ I had been on vacation and not written a check or made a deposit in a month. The screen reflected a battle between two banks about a check from 6 weeks before. Someone did not like the endorsement. No one contacted me. The two banks viewed this as completely an internal matter.

Case 2: Many years ago, I deposited a substantial cashiers check in my account at a major commercial bank in Virginia. The novice teller told me that the check would take 10 days to "clear". I always keep a copy of these kinds of checks. As I often dealt with the branch manager, I called the office at noon the next day and the branch mgr told me the check cleared 10am that morning in Cleveland.... big checks get special handling and move fast. But five days later my bank did not want to honor a check for $150 to the local utility! Someone had flagged my account even though there was a few thousand in the account before the big check was deposited.

Case 3: I wired 300k from Colorado to Virginia. My bank in Colorado said - "job done, wire received". My bank in Virginia said "what wire". After two days of remote phone complaints, my bank in Virginia finally discovered that the wire was sitting at the recently acquired sister bank in Maryland and no one had done anything about a wire that matched no known accounts in Maryland. For 48 hours, everyone in Virginia thought my Colorado bank was lying. No apologies were offered by the offending institution.

Lessons learned: Murphy lurks in the dark corners of all institutions. Don't trust your receipt. Double check your transactions. Don't assume that wires are any better than paper checks!