Roth question

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uberme
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Roth question

Post by uberme » Mon May 21, 2018 10:31 am

Hello all,

Can someone please help me with a question - I contributed $5500 to my Roth IRA in January. In late April I took the $5500 back out into checking and put it in a new Roth IRA. I proceeded to move all funds from old to new.

Do I need to have the $5500 coded as a rollover contribution? Or new contribution?

Thank you! :sharebeer

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Earl Lemongrab
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Re: Roth question

Post by Earl Lemongrab » Mon May 21, 2018 2:58 pm

Exactly how did you do it? Did you withdraw cash and deposit it as a rollover to the new one?

What you should have done was a trustee transfer from old to new custodian.

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uberme
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Re: Roth question

Post by uberme » Mon May 21, 2018 3:05 pm

Earl Lemongrab wrote:
Mon May 21, 2018 2:58 pm
Exactly how did you do it? Did you withdraw cash and deposit it as a rollover to the new one?

What you should have done was a trustee transfer from old to new custodian.
I took cash out and put cash into the new one, which shows as a regular contribution for 2018.
I’m not sure if the IRS will see $11,000 contribution and $5500 distribution across the two accounts for 2018? As long as the total contribution doesn’t exceed $5500 I’m good right? Thanks!!

bloom2708
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Re: Roth question

Post by bloom2708 » Mon May 21, 2018 3:11 pm

Was there any gain on the $5,500 originally put in? I'm surprised you did not see a bunch of warnings/messages that you were doing something that might have tax consequences.

There is a 10% penalty on early withdrawals (not counting the original investment). If your $5,500 grew to $5,550 and you took out $5,550, then you might get hit with a 10% penalty on the $50 gain.

You did a contribution, a distribution and another contribution. Next time, transfer the account from one institution to another. Leave the funds in the Roth IRA. Move the Roth IRA. That way there is no taxable event.
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niceguy7376
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Re: Roth question

Post by niceguy7376 » Mon May 21, 2018 3:12 pm

which broker did you do the first contribution at?

retiredjg
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Re: Roth question

Post by retiredjg » Mon May 21, 2018 3:13 pm

If you had done a transfer from one account to the other, it would have been OK. Or if you'd had your custodian return your contribution, I think it would have been OK.

But what the IRS is going to see is two separate contributions, one of which you are not eligible for, and a withdrawal. You were eligible to withdraw the contribution. If any extra money came to you at that time, it will be taxable income.

I suppose it would not hurt to call custodian #1 and tell them you made a mistake in how you took out the money and see if they are willing to code the 1099 as a return of your contribution. You are allowed to get a return (some call it a withdrawal) of your contribution, but you just did it the wrong way.

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uberme
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Re: Roth question

Post by uberme » Mon May 21, 2018 3:19 pm

bloom2708 wrote:
Mon May 21, 2018 3:11 pm
Was there any gain on the $5,500 originally put in? I'm surprised you did not see a bunch of warnings/messages that you were doing something that might have tax consequences.

There is a 10% penalty on early withdrawals (not counting the original investment). If your $5,500 grew to $5,550 and you took out $5,550, then you might get hit with a 10% penalty on the $50 gain.

You did a contribution, a distribution and another contribution. Next time, transfer the account from one institution to another. Leave the funds in the Roth IRA. Move the Roth IRA. That way there is no taxable event.
There was not, the majority of the account was in cash. From my research contributions can be taken out whenever, I put in $5500, it sat in cash, and I took the $5500 out. I then deposited $5500 to the new Roth at Fidelity. The remainder of the old account held cash/ETFs which I transferred to Fidelity. You're right I definitely created more work - I should have transferred everything.

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Earl Lemongrab
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Re: Roth question

Post by Earl Lemongrab » Mon May 21, 2018 3:30 pm

Contact the receiver and see about getting it reclassified as a 60-day rollover.

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uberme
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Re: Roth question

Post by uberme » Mon May 21, 2018 3:41 pm

Earl Lemongrab wrote:
Mon May 21, 2018 3:30 pm
Contact the receiver and see about getting it reclassified as a 60-day rollover.
Awesome, I will do this. Thank you!

Thanks everyone!!

retiredjg
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Re: Roth question

Post by retiredjg » Mon May 21, 2018 3:42 pm

Earl Lemongrab wrote:
Mon May 21, 2018 3:30 pm
Contact the receiver and see about getting it reclassified as a 60-day rollover.
:oops: It does seem like that would work.

Again, you might have to tell the custodian you goofed in how you moved the money - should have told them it was a 60 day rollover from the start but you were confused about how it works.

But, it is the receiver how does the classification or is this something you document on your taxes? Or both.

nolesrule
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Re: Roth question

Post by nolesrule » Mon May 21, 2018 3:50 pm

retiredjg wrote:
Mon May 21, 2018 3:42 pm
Earl Lemongrab wrote:
Mon May 21, 2018 3:30 pm
Contact the receiver and see about getting it reclassified as a 60-day rollover.
:oops: It does seem like that would work.

Again, you might have to tell the custodian you goofed in how you moved the money - should have told them it was a 60 day rollover from the start but you were confused about how it works.

But, it is the receiver how does the classification or is this something you document on your taxes? Or both.
Form 5498 reports contributions to the IRS.

retiredjg
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Re: Roth question

Post by retiredjg » Mon May 21, 2018 5:43 pm

nolesrule wrote:
Mon May 21, 2018 3:50 pm
retiredjg wrote:
Mon May 21, 2018 3:42 pm
Earl Lemongrab wrote:
Mon May 21, 2018 3:30 pm
Contact the receiver and see about getting it reclassified as a 60-day rollover.
:oops: It does seem like that would work.

Again, you might have to tell the custodian you goofed in how you moved the money - should have told them it was a 60 day rollover from the start but you were confused about how it works.

But, it is the receiver how does the classification or is this something you document on your taxes? Or both.
Form 5498 reports contributions to the IRS.
Not sure it reports rollovers though.

nolesrule
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Re: Roth question

Post by nolesrule » Mon May 21, 2018 5:57 pm

retiredjg wrote:
Mon May 21, 2018 5:43 pm
nolesrule wrote:
Mon May 21, 2018 3:50 pm
retiredjg wrote:
Mon May 21, 2018 3:42 pm
Earl Lemongrab wrote:
Mon May 21, 2018 3:30 pm
Contact the receiver and see about getting it reclassified as a 60-day rollover.
:oops: It does seem like that would work.

Again, you might have to tell the custodian you goofed in how you moved the money - should have told them it was a 60 day rollover from the start but you were confused about how it works.

But, it is the receiver how does the classification or is this something you document on your taxes? Or both.
Form 5498 reports contributions to the IRS.
Not sure it reports rollovers though.
5498 reports the method for how money got into the account for the tax year and the fair market value at the end of the year. So yes, it separately reports money that came in through direct contribution, rollover or conversion (for a Roth account).

MIretired
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Re: Roth question

Post by MIretired » Mon May 21, 2018 6:00 pm

uberme wrote:
Mon May 21, 2018 3:19 pm
bloom2708 wrote:
Mon May 21, 2018 3:11 pm
Was there any gain on the $5,500 originally put in? I'm surprised you did not see a bunch of warnings/messages that you were doing something that might have tax consequences.

There is a 10% penalty on early withdrawals (not counting the original investment). If your $5,500 grew to $5,550 and you took out $5,550, then you might get hit with a 10% penalty on the $50 gain.

You did a contribution, a distribution and another contribution. Next time, transfer the account from one institution to another. Leave the funds in the Roth IRA. Move the Roth IRA. That way there is no taxable event.
There was not, the majority of the account was in cash. From my research contributions can be taken out whenever, I put in $5500, it sat in cash, and I took the $5500 out. I then deposited $5500 to the new Roth at Fidelity. The remainder of the old account held cash/ETFs which I transferred to Fidelity. You're right I definitely created more work - I should have transferred everything.
I think you might need to get the new account classified as a rollover. Your old account is going to call it a distribution; an early one. Just on your 1040 make it non-taxable.
There is a new law a few years ago: one rollover per year. These are rollovers where you received the money in-hand. Does not care about direct rollovers from trustee to trustee and you did not get a check yourself. One manual rollover per year out of all accounts, not per account.
Your <60 day rollover should not get taxed on any gains; it's a rollover.
Watch out for the one rollover rule where you receive the money in hand. May have to reverse these if you did. Or they will penalized and taxed as an early distribution.

retiredjg
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Re: Roth question

Post by retiredjg » Mon May 21, 2018 6:08 pm

nolesrule wrote:
Mon May 21, 2018 5:57 pm
5498 reports the method for how money got into the account for the tax year and the fair market value at the end of the year. So yes, it separately reports money that came in through direct contribution, rollover or conversion (for a Roth account).
In that case, the poster will definitely have to get the custodian on board that it was a mis-handled 60 day rollover and that they will report it as a 60 day rollover. Otherwise, it seems there is no hope.

Topic Author
uberme
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Re: Roth question

Post by uberme » Mon May 21, 2018 7:52 pm

retiredjg wrote:
Mon May 21, 2018 6:08 pm
nolesrule wrote:
Mon May 21, 2018 5:57 pm
5498 reports the method for how money got into the account for the tax year and the fair market value at the end of the year. So yes, it separately reports money that came in through direct contribution, rollover or conversion (for a Roth account).
In that case, the poster will definitely have to get the custodian on board that it was a mis-handled 60 day rollover and that they will report it as a 60 day rollover. Otherwise, it seems there is no hope.
I still don't fully understand this; I took this years contribution back out, no gains. If you're able to take the current years contribution out w/o penalty why do I need to have the new custodian code it as a rollover? Prior year contributions were rolled over.

What would I be paying a penalty on?

Sorry for the confusion on my end. :beer

Alan S.
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Re: Roth question

Post by Alan S. » Mon May 21, 2018 11:41 pm

The second contribution was NOT made within 60 days of the distribution, so it was not rollover eligible. Therefore, no sense in trying to get the new custodian to code the contribution as a rollover. What you have is a second 2018 contribution, which is an excess contribution.

What was not stated was whether the January contribution was for 2017 or 2018. If by chance it was for 2017, the 5498 would be issued any day now. The distribution would not have been taxable as return of a regular Roth contribution (1099R will be issued next January), but the 2017 contribution space would be lost. However, the new 2018 contribution could then stick since it would be the only 2018 contribution.

However, if the January contribution was for 2018, because it was not specifically returned with earnings, the 2018 contribution will stand. That leaves no room for the second contribution (evidently made after 4/18 - please verify) and therefore the second contribution will be an excess 2018 contribution that must be withdrawn with earnings to avoid an excise tax.

Yes, classic case of a series of faulty transactions.

retiredjg
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Re: Roth question

Post by retiredjg » Tue May 22, 2018 6:07 am

Alan S. wrote:
Mon May 21, 2018 11:41 pm
The second contribution was NOT made within 60 days of the distribution......
How do you know that? :confused

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RickBoglehead
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Re: Roth question

Post by RickBoglehead » Tue May 22, 2018 6:15 am

retiredjg wrote:
Tue May 22, 2018 6:07 am
Alan S. wrote:
Mon May 21, 2018 11:41 pm
The second contribution was NOT made within 60 days of the distribution......
How do you know that? :confused
Because he read what the OP posted -

I contributed $5500 to my Roth IRA in January. In late April I took the $5500 back out into checking and put it in a new Roth IRA.


There is no rollover here. The OP contributed to a ROTH IRA for 2018 (assumed), withdrew his contribution, had zero earnings (???), and then contributed again.

The IRS will see TWO contributions, and a withdrawal.
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retiredjg
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Re: Roth question

Post by retiredjg » Tue May 22, 2018 6:54 am

RickBoglehead wrote:
Tue May 22, 2018 6:15 am
retiredjg wrote:
Tue May 22, 2018 6:07 am
Alan S. wrote:
Mon May 21, 2018 11:41 pm
The second contribution was NOT made within 60 days of the distribution......
How do you know that? :confused
Because he read what the OP posted -

I contributed $5500 to my Roth IRA in January. In late April I took the $5500 back out into checking and put it in a new Roth IRA.


There is no rollover here. The OP contributed to a ROTH IRA for 2018 (assumed), withdrew his contribution, had zero earnings (???), and then contributed again.

The IRS will see TWO contributions, and a withdrawal.
You'll have to dumb it down for me.

The way I read it, he took money out of Roth IRA in late April and there is no indication of when the money got into the new Roth IRA.....but since 60 days has not yet passed....why could it not be a 60 day rollover?

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Epsilon Delta
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Re: Roth question

Post by Epsilon Delta » Tue May 22, 2018 10:32 am

retiredjg wrote:
Tue May 22, 2018 6:54 am
The way I read it, he took money out of Roth IRA in late April and there is no indication of when the money got into the new Roth IRA.....but since 60 days has not yet passed....why could it not be a 60 day rollover?
Just to further the confusion :twisted:

If he is still in the 60 day window and has an extra $5500 lying around (e.g. e-fund) can he make a third contribution, designate it as a roll over of the late April distribution and then take a corrective distribution of the second contribution?

I'll also mention he once per year limit on indirect rollovers. If there has been some other indirect rollover in 2017 or 2018 it would be well to post the details so we can check if the limit applies.

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uberme
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Re: Roth question

Post by uberme » Tue May 22, 2018 11:59 am

retiredjg wrote:
Tue May 22, 2018 6:54 am
RickBoglehead wrote:
Tue May 22, 2018 6:15 am
retiredjg wrote:
Tue May 22, 2018 6:07 am
Alan S. wrote:
Mon May 21, 2018 11:41 pm
The second contribution was NOT made within 60 days of the distribution......
How do you know that? :confused
Because he read what the OP posted -

I contributed $5500 to my Roth IRA in January. In late April I took the $5500 back out into checking and put it in a new Roth IRA.


There is no rollover here. The OP contributed to a ROTH IRA for 2018 (assumed), withdrew his contribution, had zero earnings (???), and then contributed again.

The IRS will see TWO contributions, and a withdrawal.
You'll have to dumb it down for me.

The way I read it, he took money out of Roth IRA in late April and there is no indication of when the money got into the new Roth IRA.....but since 60 days has not yet passed....why could it not be a 60 day rollover?
I took the money out and put it into the new account within the same week. I'm waiting on a reply from Fidelity. Might call them.

This is the first and only direct rollover

80% of the account was always in cash (including prior contributions)

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Earl Lemongrab
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Re: Roth question

Post by Earl Lemongrab » Tue May 22, 2018 1:26 pm

uberme wrote:
Tue May 22, 2018 11:59 am

I took the money out and put it into the new account within the same week. I'm waiting on a reply from Fidelity. Might call them.

This is the first and only direct rollover
This would be, if it can be clarified as such, an indirect rollover. You took money out personally and could have spent it.

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uberme
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Re: Roth question

Post by uberme » Tue May 22, 2018 3:25 pm

Thanks everyone! :beer

Fidelity is great - explained what happened and they're working re-coding the deposit as a 60 day rollover. :sharebeer

retiredjg
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Re: Roth question

Post by retiredjg » Tue May 22, 2018 4:20 pm

uberme wrote:
Tue May 22, 2018 11:59 am
This is the first and only direct rollover
I think you have already realized this, but what you did was NOT a direct rollover. The term "direct rollover" refers to work plans like a 401k, not to an IRA.

What you apparently did was a 60 day rollover with the contribution and a trustee to trustee transfer with the rest of the original IRA account.

You did it all wrong, but apparently Fidelity was willing to make it turn out right. You are fortunate.

Read the first couple of paragraphs of this carefully and you'll see why I say what I said above.

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

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