IRA Rollover 1 per year rule

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WorkToLive
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IRA Rollover 1 per year rule

Post by WorkToLive » Fri Nov 10, 2017 3:09 pm

I'm trying to understand the rule related to:

IRA one-rollover-per-year rule

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.

Beginning after January 1, 2015, you can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs you own.

https://www.irs.gov/retirement-plans/pl ... tributions

My husband has the following IRAs. Both contain 100% pre-tax funds:
Traditional IRA (Vanguard)
SIMPLE IRA (Fidelity)

My plan is to roll both of these to a new TIAA-CREF Traditional IRA that is not yet open. Will rolling both of these into the TIAA-CREF account in one year violate the rule? I understand a trustee-to-trustee transfer exempts you from the rule, but I'm not sure that is supported by these investment companies.

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Duckie
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Re: IRA Rollover 1 per year rule

Post by Duckie » Fri Nov 10, 2017 6:58 pm

WorkToLive wrote:Will rolling both of these into the TIAA-CREF account in one year violate the rule? I understand a trustee-to-trustee transfer exempts you from the rule, but I'm not sure that is supported by these investment companies.
Here are the ways to transfer assets from one IRA to another IRA:
  1. Trustee-to-trustee transfer
    1. Where the assets go directly from Custodian #1 to Custodian #2. This is the best method and does not trigger the one-year-rule.
    2. Where a check from Custodian #1 is mailed to you but made out to Custodian #2 FBO WorkToLive. You forward the check to Custodian #2. This also does not trigger the one-year-rule.
  2. 60-day rollover
    • Where a check from Custodian #1 is mailed to you and made out to WorkToLive. You then deposit it into your account and write a check for Custodian #2. You have 60 days to complete this and Custodian #1 may withhold 10% of the account assets for taxes unless you opt out. If they do withhold, when you write the check for Custodian #2 you will have to add that 10% back from outside income or you'll be taxed and penalized on that amount. This does trigger the one-year-rule and you have to report it on your taxes.
    **Lots of mistakes. This has been corrected to combine the previous trustee-to-trustee transfer and direct rollover methods, correct the indirect rollover name, and correct the withholding.
Last edited by Duckie on Sun Nov 12, 2017 5:46 pm, edited 1 time in total.

kaneohe
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Re: IRA Rollover 1 per year rule

Post by kaneohe » Fri Nov 10, 2017 11:16 pm

Duckie wrote:
Fri Nov 10, 2017 6:58 pm
[...................................
There are three ways to transfer IRA assets:
.......................................
[*]Indirect rollover where a check from Custodian #1 is mailed to you and made out to WorkToLive. You then deposit it into your account and write a check for Custodian #2. You have 60 days to complete this and Custodian #1 will withhold 20% of the account assets for taxes. When you write the check for Custodian #2 you will have to add that 20% back from outside income or you'll be taxed and penalized on that amount. This type of rollover triggers the one-year-rule and you have to report it on your taxes.[/list]
If you can't get Custodian #1 to do the first method, then use the second. Absolutely avoid the third.
Don't know about simple IRAs but for "normal" IRAs, you can opt out of withholding (you may have to have that in writing to custodian).
I believe that mandatory 20% withholding may apply to qualified plans?

In OP's case, doing both indirect rollovers would be 2 in a yr., violating the 1 in a yr rule. It would seem highly doubtful that big companies like VG and Fidelity would not support direct transfers to TIAA.

WorkToLive
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Re: IRA Rollover 1 per year rule

Post by WorkToLive » Sat Nov 11, 2017 7:19 am

Thank you. So as long as I get the distribution check written out to TIAA-CREF and do not have any tax withholding, I can do both. I'm sure that is feasible.

lazyday
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Re: IRA Rollover 1 per year rule

Post by lazyday » Sat Nov 11, 2017 7:32 am

Duckie wrote:
Fri Nov 10, 2017 6:58 pm
2. Direct rollover where a check from Custodian #1 is mailed to you but made out to Custodian #2 FBO WorkToLive. You forward the check to Custodian #2. This also does not have withholding and does not trigger the one-year-rule.
Perhaps the IRS would consider this a Trustee-to-trustee transfer, since the payment is made directly from one IRA to another IRA? Even though the check passes through your hands, the money does not.

The IRS seems to use "Direct rollover" to mean a distribution from a "retirement plan" (such as a 401k?) not from an IRA.

https://www.irs.gov/retirement-plans/pl ... tributions
Direct rollover – If you’re getting a distribution from a retirement plan, you can ask your plan administrator to make the payment directly to another retirement plan or to an IRA. Contact your plan administrator for instructions. The administrator may issue your distribution in the form of a check made payable to your new account. No taxes will be withheld from your transfer amount.

Trustee-to-trustee transfer – If you’re getting a distribution from an IRA, you can ask the financial institution holding your IRA to make the payment directly from your IRA to another IRA or to a retirement plan. No taxes will be withheld from your transfer amount.
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

Perkunas
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Re: IRA Rollover 1 per year rule

Post by Perkunas » Sat Nov 11, 2017 7:13 pm

Duckie wrote:
Fri Nov 10, 2017 6:58 pm
There are three ways to transfer IRA assets:
  1. Trustee-to-trustee transfer where the assets go directly from Custodian #1 to Custodian #2. This is the best method, does not have withholding, and does not trigger the one-year-rule.
  2. Direct rollover where a check from Custodian #1 is mailed to you but made out to Custodian #2 FBO WorkToLive. You forward the check to Custodian #2. This also does not have withholding and does not trigger the one-year-rule.
  3. Indirect rollover where a check from Custodian #1 is mailed to you and made out to WorkToLive. You then deposit it into your account and write a check for Custodian #2. You have 60 days to complete this and Custodian #1 will withhold 20% of the account assets for taxes. When you write the check for Custodian #2 you will have to add that 20% back from outside income or you'll be taxed and penalized on that amount. This type of rollover triggers the one-year-rule and you have to report it on your taxes.
If you can't get Custodian #1 to do the first method, then use the second. Absolutely avoid the third.
My understanding was that anything other than a trustee-to-trustee transfer between IRAs would be subject to the once-per-12-month rule (when discussing any form or IRA such as Trad or SIMPLE).

Respectfully, do you have any links that discuss point (B) in your post that indicate such a "direct rollover" would not trigger the 1 per 12-month rule? Or anything that differentiates the direct and indirect forms of rollover that you mention? I am not trying to contend your post but rather I am interested for my edification. Thanks and cheers.

Spirit Rider
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Re: IRA Rollover 1 per year rule

Post by Spirit Rider » Sat Nov 11, 2017 7:38 pm

Rollovers of Retirement Plan and IRA Distributions

IRA one-rollover-per-year rule
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.

Beginning after January 1, 2015, you can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs you own.

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
Once this rule takes effect, the tax consequences are:
  • you must include in gross income any previously untaxed amounts distributed from an IRA if you made an IRA-to-IRA rollover (other than a rollover from a traditional IRA to a Roth IRA) in the preceding 12 months, and
  • you may be subject to the 10% early withdrawal tax on the amount you include in gross income.
See IRA One-Rollover-Per-Year Rule for more on this limit.

Spirit Rider
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Re: IRA Rollover 1 per year rule

Post by Spirit Rider » Sat Nov 11, 2017 7:41 pm

Rollovers of Retirement Plan and IRA Distributions

How do I complete a rollover?
  • Direct rollover – If you’re getting a distribution from a retirement plan, you can ask your plan administrator to make the payment directly to another retirement plan or to an IRA. Contact your plan administrator for instructions. The administrator may issue your distribution in the form of a check made payable to your new account. No taxes will be withheld from your transfer amount.
  • Trustee-to-trustee transfer – If you’re getting a distribution from an IRA, you can ask the financial institution holding your IRA to make the payment directly from your IRA to another IRA or to a retirement plan. No taxes will be withheld from your transfer amount.
  • 60-day rollover – If a distribution from an IRA or a retirement plan is paid directly to you, you can deposit all or a portion of it in an IRA or a retirement plan within 60 days. Taxes will be withheld from a distribution from a retirement plan (see below), so you’ll have to use other funds to roll over the full amount of the distribution.
IRA one-rollover-per-year rule
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.

Beginning after January 1, 2015, you can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs you own.

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
Once this rule takes effect, the tax consequences are:
  • you must include in gross income any previously untaxed amounts distributed from an IRA if you made an IRA-to-IRA rollover (other than a rollover from a traditional IRA to a Roth IRA) in the preceding 12 months, and
  • you may be subject to the 10% early withdrawal tax on the amount you include in gross income.
See IRA One-Rollover-Per-Year Rule for more on this limit.

Alan S.
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Re: IRA Rollover 1 per year rule

Post by Alan S. » Sat Nov 11, 2017 7:45 pm

A direct rollover involving an IRA is limited to a distribution rolled into a qualified employer plan OR from a qualified plan to an IRA. There are no "direct rollovers" between IRA accounts. All direct rollovers are coded either G or H and there is a qualified plan on one end of the transaction.

Since the one rollover limitation only applies to IRA to IRA distribution/rollovers except conversions, the IRA must be on both ends of the transaction to be exposed to this limitation. But there must also be a distribution which is why a direct transfer between IRAs is not reported on a 1099R and there is no distribution involved.

So item #2 should not have been listed there since the transaction example falls under #1 - Trustee to trustee transfer (aka direct transfer).

Perkunas
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Re: IRA Rollover 1 per year rule

Post by Perkunas » Sat Nov 11, 2017 8:39 pm

Alan S. wrote:
Sat Nov 11, 2017 7:45 pm
A direct rollover involving an IRA is limited to a distribution rolled into a qualified employer plan OR from a qualified plan to an IRA. There are no "direct rollovers" between IRA accounts. All direct rollovers are coded either G or H and there is a qualified plan on one end of the transaction.

Since the one rollover limitation only applies to IRA to IRA distribution/rollovers except conversions, the IRA must be on both ends of the transaction to be exposed to this limitation. But there must also be a distribution which is why a direct transfer between IRAs is not reported on a 1099R and there is no distribution involved.

So item #2 should not have been listed there since the transaction example falls under #1 - Trustee to trustee transfer (aka direct transfer).
So if I understand correctly (when dealing with 2 IRAs): as long as the check is not made out to actual beneficiary, then it is a trustee to trustee transfer -- even if the check technically gets mailed to the beneficiary and then forwarded to IRA#2?

What is the difference between a direct rollover and 60-day rollover if we were discussing a qualified plan & IRA?

WorkToLive
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Re: IRA Rollover 1 per year rule

Post by WorkToLive » Sat Nov 11, 2017 10:02 pm

I think I am more confused than ever. IRS guidance does not seem to be helpful here. Is it ok to do what I propose as long as I have the check written to the new IRA holder? Who can I confirm this with?

bsteiner
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Re: IRA Rollover 1 per year rule

Post by bsteiner » Sat Nov 11, 2017 10:23 pm

The one rollover within 12 months was in Section 408(d)(3) long before 2015.

Perkunas
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Re: IRA Rollover 1 per year rule

Post by Perkunas » Sat Nov 11, 2017 10:33 pm

WorkToLive wrote:
Sat Nov 11, 2017 10:02 pm
I think I am more confused than ever. IRS guidance does not seem to be helpful here. Is it ok to do what I propose as long as I have the check written to the new IRA holder? Who can I confirm this with?
You are fine with doing multiple trustee-to-trustee transfers, or one trustee-to-trustee along with one rollover. Vanguard and Fidelity should not have any problems with a t2t but a phone call to each can confirm that.

You may have a separate issue with the Simple; that has special rules dependent on how long it has been open... less than 2 years and it may need to go into another Simple. More than 2 years and it should be okay to go into a rollover IRA.
bsteiner wrote:
Sat Nov 11, 2017 10:23 pm
The one rollover within 12 months was in Section 408(d)(3) long before 2015.
I believe prior to 2015 you could do multiple rollovers so long as you never used the same IRA twice.

Spirit Rider
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Re: IRA Rollover 1 per year rule

Post by Spirit Rider » Sat Nov 11, 2017 10:36 pm

Perkunas wrote:
Sat Nov 11, 2017 8:39 pm
What is the difference between a direct rollover and 60-day rollover if we were discussing a qualified plan & IRA
Think of it like this. There are really only two ways of moving funds from one retirement plan to another:
  1. Indirect 60-day rollover: With a source of a plan or IRA and a destination of a plan or IRA. This is when the check is made payable to the individual, the individual takes possession of the funds and sends funds to the new custodian within 60 days. Only when this is from a traditional IRA to a traditional IRA or a Roth IRA to a Roth IRA is it subject to the one rollover per 1 year period rule.
  2. Trustee to trustee transfer or not an indirect 60-day rollover: This is when the individual never takes possession of the funds. It is fine for the check to be sent to the individual for forwarding to the new custodian as long as the check is endorsed to the new custodian These are never subject to the one rollover per 1 year period rule.
    1. It is considered a trustee to trustee transfer when it is from a traditional IRA to a traditional IRA or a Roth IRA to a Roth IRA
    2. Otherwise it is not considered an indirect 60-day rollover.

bsteiner
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Re: IRA Rollover 1 per year rule

Post by bsteiner » Mon Nov 13, 2017 10:32 am

Perkunas wrote:
Sat Nov 11, 2017 10:33 pm
...
I believe prior to 2015 you could do multiple rollovers so long as you never used the same IRA twice.
You could in the sense that the IRS didn't seem to be aware that the statute said you couldn't, but the statute said you couldn't.

Section 408(d)(3)(B) says (and for many years has said):
This paragraph [rollover] does not apply to any amount described in subparagraph (A)(i) received by an individual from an individual retirement account or individual retirement annuity if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in that subparagraph from an individual retirement account or an individual retirement annuity which was not includible in his gross income because of the application of this paragraph.

oslocal
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Re: IRA Rollover 1 per year rule

Post by oslocal » Mon Jan 22, 2018 3:31 pm

I'm trying to do the direct trustee-to-trustee rollover from Lending Club/Strata to Vanguard and they have a form asking what type of distribution.

My options are
1 - Normal Distribution: I am 59.5 or older
2 - Early/Premature
3 - Early/Premature Exception Applies
many others that don't apply.

Shall I use option 3 for this?

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Duckie
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Re: IRA Rollover 1 per year rule

Post by Duckie » Mon Jan 22, 2018 4:05 pm

oslocal wrote:Shall I use option 3 for this?
If you're under age 59.5 then it's probably "3 - Early/Premature Exception Applies". The exception is that you're doing a direct rollover of a distribution to an IRA.

Spirit Rider
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Re: IRA Rollover 1 per year rule

Post by Spirit Rider » Mon Jan 22, 2018 4:52 pm

These look to be the same categories (but not correct codes) for Form 1099-R Box 7. This is a big red flag to me. None of these options should apply because a direct tIRA trustee -> tIRA trustee transfer is not reportable and no 1099-R should be generated.

I would not make any such entry and verify that they are in fact doing a trustee -> trustee transfer and not a rollover.

Actually, I would contact Vanguard too. To make sure this transfer is done by Lending Club/Strata to Vanguard correctly and they know it is not a reportable transaction.

oslocal
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Re: IRA Rollover 1 per year rule

Post by oslocal » Mon Jan 22, 2018 11:39 pm

Thanks. I completed the form on Vanguard, and getting a medallion/notary signature tomorrow, then sending it to Vanguard and let them handle the process.
They say it can take 4-6 weeks. Does the sending financial institution have any say in this process or do they simply have to do as they are told by the paperwork they will receive from Vanguard?

(edited: grammar)

Spirit Rider
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Re: IRA Rollover 1 per year rule

Post by Spirit Rider » Tue Jan 23, 2018 1:39 am

The source custodian is always in control. Vanguard can represent your interests and suggest proper steps.

However, ultimately the source custodian has the funds and responsibility for the correct process and reporting/non-reporting. Vanguard's only true responsibility is receiving the assets.

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