Distributions

[Guest sansbroker]

I took a distribution from my Roth with the understanding that I would pay it back within 60 days. This, I was told, would allow me to use the cash for the specified time period and return it to my Roth IRA without any penalty or tax ramifications.

The kicker is that I did this 3 different times within a 45 day period.

Can I redeposit the money I withdrew to avoid any taxes or penalties if I am still within the 60 day period.

[Guest Paul Leslie]

Good question: You got problems:

1. You have three rollovers in one year, each of those will be counted sperately. The IRS allows for only one roll over in a 12 month span. It doesn't mean you take out as many distributions as you want in a 60 day period as long as you get it back in before the deadline.

2. So the last two of those distributions are considered distributions subject to tax and penalty because they are disqualified rollovers. You need consult someone on the tax implications because distributions from a Roth first come from contributions, then from conversion amounts, and then from earnings. A distribution of a contribution is not subject to tax or penalty but the others are.

3. Since you put the money back in from the 2 ineligable rollovers, the IRS will consider these contributions to the Roth. The annual limit is 2,000 assuming you also have compensation. Any money in excess of the allowable contribution would cause a 6% excess penalty. However, the way to get around the excess contribution penalty is to remove the contributions plus the earnings. The earnings on an excess contribution will be subject to income tax but not the penalty.

Sansbroker you need to work with someone who has all the facts on your situation to figure the tax consquences and what the next step would be.

[Guest Paul Leslie]

As if you didn't have enough of me yet.

I did think of one exception- the rule of 1 rollover per 12 months is per account.

So if you took the money of the three differnt roth accounts, then you would not have any problems.

Example

Distribution 1 took from Roth with xyz

Distribution 2 took from Roth with ABC

Distribution 3 took from Roth with 123

Then you don't have problems as long as the money got back in within the 60 days.

[Guest sansbroker]

I called the IRS 3 times and got 3 somewhat different answers.

1) It's just as you say I can only rollover the first amount and the other 2 our considered distributions.

2) If I get all 3 amounts in buy the deadline of the first my 60 day period didn't expire yet so I am ok. This guy basically said that they just don't want you pulling out the same money over and over, so in my situation each amount consists of different money and as long as I deposit it all before the first distribution expired it does not lock out the other two deposits.

3) The person said that accord to publication 509 the Roth is subject to all the rules the the regular IRA is except for the 1 year rule. This was listed under the conversions section of the roth section pub 509 (page 38).

They turned out to be not too much help.

I did find out that if I put the monies into three different Roths I would be safe.

[Guest Paul Leslie]

San

A conversion is when money moves from a traditional IRA to a Roth IRA. You can do as many of these as you want in a year. It will not effect the one rollover rule per year.

The way I understood the question was took money from the Roth and put it back into a Roth.

I would have to disagree with the IRS that those were completely seperate distributions.

I hope you got the persons name in scenario two because you may need that if the IRS questions and hits you with interest and penalties.

[Guest Paul Leslie]

Sans call the trustee of the Roth and ask how they are going to report the three distributions.

If the trustee takes the position that this was all one distribution, then make sure you know why ask for a cite and get the name of the person you talked with. Plus make sure the trustee codes the 1099R(s) correctly because that is what the IRS will get.

Most firms I have worked with are not willing to correct a 1099R even if they know they are wrong. The logic is this is how we did it, if you have problem with that argue with the IRS because it is between the IRA owner and the IRS.

[Guest sansbroker]

That's what I have been doing, thanks.

I called the firm and they tell me that they accumulate the distribution for the whole year onto one 1099R. So, I figure I should be safe, but I will call them and ask them if they will code it the same(i.e. as one transaction, or will they put different codes on there for each amount)