One IRA rollover per year rule

[B21]

If an individual takes multiple distributions from a single IRA within a 12-month period & redeposits all the funds back into the IRA within the 60-day deadline, can the individual designate which redeposited funds are treated as an IRA rollover & which funds are considered excess contributions to be withdrawn?

My initial response is that the funds redeposited first are treated as a rollover & each subsequent deposits are treated as excess contributions. What if the individual doesn't designate the first deposit as a rollover but rather designates the largest deposit as a rollover?

[spiritrider]

It is the first withdrawal that determines the amount allowed to be rolled over. That can be in one contribution or many. The amount eligible to be considered a rollover is the lesser of the first withdrawal and the sum of all contributions within the 60-day period. If there are subsequent withdrawals, there is no ability to designate those as the funds eligible for rollover.

The withdrawal money is fungible with all of the account owners funds. It does not matter if the money for the contributions came from the first withdrawal, subsequent withdrawals or any other source of funds the owner has.

[B21]

Thank you for your reply. That's my understanding too that the amount considered as the eligible rollover for determining the one-rollover-per year rule is based on the chronology of events.

Is it permissible for an individual to withdraw $27k in funds from an IRA & make a deposit within 60 days for the same amount withdrawn but indicate to the custodian that this deposit is a regular contribution not a rollover contribution & treat as an excess contribution? Then withdraw $50k in funds & deposit within 60 days for the same amount withdrawn & indicate this as his rollover contribution?

Would the IRS look at this as an attempt to maneuver around the rule?

[stephen]

I'm not sure how this would work since the 2017 IRA contribution limit is $5,500 ($1,000 catch-up if 50 or older).

[spiritrider]

First, as implied by Stephen but not explicitly stated. IRA custodians are required to ensure IRA contributions do not exceed the limit. Second, the $27K from the original withdrawal must be rolled over within 60 days of that withdrawal and the second withdrawal is a distribution that can not be rolled over.

I don't know what you are trying to do, but bear in mind, the reason we are stuck with the one rollover per 12 month period is because some stupid lawyer ruined it for the rest of us. Him and his wife had multiple IRAs and they were rolling over from one account to another to facilitate essentially an extended loan.

Then when he made the last deposit after 61 days, he compounded his problem  and all the rest of us. He tried to fight the IRS., resulting in the exposure of the entire scheme. 

[John G]

We have layperson readers of this message board.  Let me try to clarify some points.

IF you do a direct custodian movement of funds, such as IRA to IRA, or Roth to Roth, and you never touch the funds, you have no restrictions.  Example 1:  Custodian for account A can send money to B and C.  Example 2:  Custodian A can send funds to B, and separately Custodian C can send funds to D.  These are the most common type of movement of funds from one custodial IRA/Roth to another, the one per year does not apply.  If you don't touch the funds, then the one and done restriction does not apply.

IF you have the funds sent to you.  Then you have a 60 day window to redeposit funds into the same IRA or a different IRA of the same class.

IF you are moving from IRA to Roth, then you fall under the conversion rules.  This is not a rollover or distribution but a conversion.

This somewhat oversimplifies the rules, but probably covers 90% of the common transactions.

 

[jbw101be]

Hello,
Very informative, but there still seems to be something that was not covered.

I needed to get money out of a simple IRA to make use of large 2020 deductibles, etc.,
so I requested financial advisor to, near the end of 2020, do a withdrawal,
but to make sure things went right, I only did a test of $5,000.
Due to problems, it was done as a check to me, that I deposited, and it has cleared.

A week after the original withdrawal, but before the end of 2020, I had another larger
withdrawal done, and that check is deposited, and cleared.

So, now I've been wondering if I pulled too much out, and don't need to take the larger tax hit,
and am thinking of putting more than the $5,000 (but less than the second withdrawal),
back into a new IRA as a 60-day rollover, but what has been said on here makes me
wonder if that would work. I have spent hours, and hours, and I can't find where IRS
or anybody else, says I can't treat the first one as a distribution, and the second as a 60-day
rollover. (Looks like this thread is only talking about 2 rollovers, and backing one out?)

So, why can't I just do the 1 rollover with the 2nd withdrawal? Thanks!

[C. B. Zeller]

Since you took the distribution in 2020, if you meet the definition of a qualified individual (impacted in certain ways by COVID), then you should be able to treat the distribution as a coronovirus-related distribution, which a) lets you spread the income tax out over 3 years, and b) lets you recontribute it back to an IRA or qualified plan within 3 years, without regard to any rollover or contribution limits.

More info on coronavirus-related distributions here: https://www.irs.gov/newsroom/coronavirus-relief-for-retirement-plans-and-iras