IRA Rollover

One of the participant rolled the funds to an IRA ( since the plan terminated) the rollover occurred in Feb 2021, now since the acquiring company will be setting up a 401K plan the participant wants to rollover the funds from IRA to the new 401K that will be set up in April, I believe the participant can rollover to the 401K plan however I believe the tax record may needs to be corrected - Correct? 

Yes, you can roll from IRA into 401(k). There is nothing to correct. There are two distributions here - one from plan A rolled to IRA reported by plan A and another from IRA rolled to plan B which will be reported by the IRA.

Of course the presumption is that the new 401(k) plan will allow rollovers.  If not, well, things are different.  Nothing to correct in either event re: 1099's.

Make sure they are trust to trust transfers so as not to violate the one rollover per year rule. That is it should go directly from Plan A -> IRA -> Plan B without the individual taking a cash distribution then writing a check.

Hey Lou- I thought the one rollover per year rule was specific to IRA to IRA. In this scenario, participant get funds from Plan A and does 60 rollover to IRA than 3 months later does a distribution from IRA and does 60 rollover to Pan B wouldn't violate the one rollover per year rule since the funds did not go from IRA to IRA. Now if client takes distribution from IRA, does rollover within 60 days to same or another IRA and then takes distribution from IRA 3 months later, those funds are not eligible to be rolled into another IRA; however, they are eligible to go into a Qualified Plan. Am I misunderstanding this rule?

https://www.irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira-distributions

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You generally cannot make more than one rollover from the same IRA within a 1-year period. You also cannot make a rollover during this 1-year period from the IRA to which the distribution was rolled over.

This is from the IRS FAQ on rollovers from qualified plans to IRAs. I'm pretty sure a rollover from Plan to IRA counts as rollover #1 (assuming it wasn't direct trustee to trustee) but if you find guidance to the contrary I'm happy to be corrected.

Though it does go on to say

Quote

 

The one-per year limit does not apply to:

• rollovers from traditional IRAs to Roth IRAs (conversions)
• trustee-to-trustee transfers to another IRA
• IRA-to-plan rollovers
• plan-to-IRA rollovers
• plan-to-plan rollovers

 

• So your understanding might be correct and I could be off.