In-and-Out IRA Rollovers Within a Calendar Year?

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fdeanw
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In-and-Out IRA Rollovers Within a Calendar Year?

Post by fdeanw »

Are there any adverse tax implications or other legal issues involved in rolling over money into and out of the same IRA account within a calendar year? I rolled over money from my individual 401(k) account to a 3-year IRA certificate at PenFed earlier this year. Now, however, in order to take advantage of the 3.00% 5-year IRA certificate and avoid paying an early withdrawal penalty (I am over 59 1/2) on "converting" the 3-year certificate to a 5-year certificate, I have to rollover the PenFed IRA funds back into my individual 401(k) and rollover "new" 401(k) funds to PenFed to purchase the new 5-year certificate. It's a pain, but it will save me over $1,000 in early withdrawal fees (or lost interest), so it's worth it.

Neither PenFed nor my 401(k) plan administrator have any objections to the transactions (i.e., the plan documents allow the rollovers into and out of the plans), but in the back of my mind, I seem to remember something about there being some adverse tax issue in moving funds into and out of an IRA account in the same year. I can't find anything about it in perusing the IRS website, however. Is anyone aware of any reason why I cannot make the rollovers in this manner? Or, better yet, has anyone done anything similar without any adverse consequences?
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G-Money
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Re: In-and-Out IRA Rollovers Within a Calendar Year?

Post by G-Money »

Don't assume I know what I'm talking about.
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ThePrune
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Re: In-and-Out IRA Rollovers Within a Calendar Year?

Post by ThePrune »

fdeanw wrote:Neither PenFed nor my 401(k) plan administrator have any objections to the transactions (i.e., the plan documents allow the rollovers into and out of the plans), but in the back of my mind, I seem to remember something about there being some adverse tax issue in moving funds into and out of an IRA account in the same year. I can't find anything about it in perusing the IRS website, however. Is anyone aware of any reason why I cannot make the rollovers in this manner? Or, better yet, has anyone done anything similar without any adverse consequences?
As always, go the relevant IRS publications to find the answer!

First, you better clarify if by "rollovers" you mean direct custodian-to-custodian transfers, or the type of rollover where the money comes to you (check made out to you) which you then deposit in the new account.

For all things "IRA" refer to IRS Publication 590 - Individual Retirement Arrangements. The rules for rollovers from / to Employer Plans (i.e. your 401k) start on page 25, right column of the linked pdf. Why not read through this and see if you can discover the answer for yourself? Then compare your understanding of the IRS rules with what others post. When both agree, then you can be fairly certain that the IRS allows it (or disallows it, as the case may be).
Last edited by ThePrune on Tue Dec 03, 2013 3:17 pm, edited 1 time in total.
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Alan S.
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Re: In-and-Out IRA Rollovers Within a Calendar Year?

Post by Alan S. »

And Penfed requires all that because they won't do a same trustee transfer from the 3 year to the 5 year Cert without charging you an early withdrawal penalty? But they WILL let you liquidate the first IRA CD to roll to a qualified plan without charging? Does not seem to make any sense from Penfed's standpoint and more work for you.

With respect to the one rollover rule, see p 24 of Pub 590 for the paragraph that describes the one rollover limit, then note the bold heading above that for the type of rollovers (from what to what) this limit applies to.
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fdeanw
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Re: In-and-Out IRA Rollovers Within a Calendar Year?

Post by fdeanw »

Thank you, G-Money, ThePrune, and Alan S., for your assistance. I did read through the IRS publications, but I did not see anything specifically related to a transfer between an IRA and an Individual 401(k), and I wasn't sure whether my individual 401(k) should be treated like a Keogh because I am self-employed, even though it does not go by that name. So, I didn't really find an answer there. I did, however, remember something coming up about the issue when I first moved funds from my IRA into my 401(k) more than a year ago, which is why I thought there might still be some restriction that applied to the individual 401(k) plan.

In any event, i particularly appreciate the comment about clarifying whether the rollover is "trustee to trustee" or by check to me. Both are being done directly through the trustees, and I now see that there is the following statement on page 22 of Pub. 590: "Because it is not a rollover, it is not affected by the 1-year waiting period required between rollovers."

So, would others agree that it is safe to assume that the one-year period waiting period does not apply in my case, because the transfers are between the PenFed and Schwab trustees?

Also, in response to Alan S.'s question, yes, PenFed requires this, apparently so that it will discourage people from converting to new CDs with higher interest rates without an EWD. Even if I agreed to withdraw the money from the 3-year CD into an IRA share account and hold it for three weeks before using it to purchase a new 5-year CD, they would not consider that a "withdrawal" and would impose the EWD. So, out it will go, and in it will come again -- I hope.
manwithnoname
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Re: In-and-Out IRA Rollovers Within a Calendar Year?

Post by manwithnoname »

fdeanw wrote:Thank you, G-Money, ThePrune, and Alan S., for your assistance. I did read through the IRS publications, but I did not see anything specifically related to a transfer between an IRA and an Individual 401(k), and I wasn't sure whether my individual 401(k) should be treated like a Keogh because I am self-employed, even though it does not go by that name. So, I didn't really find an answer there. I did, however, remember something coming up about the issue when I first moved funds from my IRA into my 401(k) more than a year ago, which is why I thought there might still be some restriction that applied to the individual 401(k) plan.

In any event, i particularly appreciate the comment about clarifying whether the rollover is "trustee to trustee" or by check to me. Both are being done directly through the trustees, and I now see that there is the following statement on page 22 of Pub. 590: "Because it is not a rollover, it is not affected by the 1-year waiting period required between rollovers."

So, would others agree that it is safe to assume that the one-year period waiting period does not apply in my case, because the transfers are between the PenFed and Schwab trustees?

Also, in response to Alan S.'s question, yes, PenFed requires this, apparently so that it will discourage people from converting to new CDs with higher interest rates without an EWD. Even if I agreed to withdraw the money from the 3-year CD into an IRA share account and hold it for three weeks before using it to purchase a new 5-year CD, they would not consider that a "withdrawal" and would impose the EWD. So, out it will go, and in it will come again -- I hope.
Trustee to trustee transfers are only permitted from one IRA to another IRA. There is no limit on the number of trustee to trustee transfers from an IRA. No 1009 reporting.

There is no limit on rollovers from an IRA to a qualified plan or from a qualified plan to an IRA. Distributions from qualified plans and IRAs are reported on the 1099.

Only one rollover is permitted from the same IRA to another IRA every 12 months. Distributions are reported on the 1099.
Topic Author
fdeanw
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Re: In-and-Out IRA Rollovers Within a Calendar Year?

Post by fdeanw »

Trustee to trustee transfers are only permitted from one IRA to another IRA. There is no limit on the number of trustee to trustee transfers from an IRA. No 1009 reporting.
Thanks, ManwithNoName. When I did the first transfer from my Individual 401(k) to the PenFed IRA, it was done as a trustee-to-trustee transfer; the check was made out directly to PenFed by Charles Schwab. Similarly, the transfer of those funds back to Charles Schwab from PenFed will be from trustee-to-trustee. Is this not proper according to the statement above? Would PenFed and Charles Schwab not know that?
Alan S.
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Re: In-and-Out IRA Rollovers Within a Calendar Year?

Post by Alan S. »

fdeanw wrote:
Trustee to trustee transfers are only permitted from one IRA to another IRA. There is no limit on the number of trustee to trustee transfers from an IRA. No 1009 reporting.
Thanks, ManwithNoName. When I did the first transfer from my Individual 401(k) to the PenFed IRA, it was done as a trustee-to-trustee transfer; the check was made out directly to PenFed by Charles Schwab. Similarly, the transfer of those funds back to Charles Schwab from PenFed will be from trustee-to-trustee. Is this not proper according to the statement above? Would PenFed and Charles Schwab not know that?
Yeah, this stuff can be very confusing. Technically, a TtoT transfer is limited to IRA to IRA transfers and is not reported. While funds can move from a 401k to an IRA and vice versa by the same physical methods, this is called a "direct rollover" and MUST be reported on a 1099R and on your return on line 16. A direct rollover is a hybrid term that reflects a two step process - first a reportable distribution (the 1099R) and second the rollover to the IRA for which you and the IRS will receive Form 5498 the following May. So your transactions between Penfed and Schwab are fine.

Note that even if you received payment and did a 60 day rollover, there would not be a one rollover limit because the one rollover limit ONLY applies if an IRA account is on both the distribution and receiving ends. Of course, a direct rollover is preferable in most cases for the 401k distribution because mandatory 20% withholding is avoided and replacing that with your other funds may be difficult.
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