IRA Rollover question

Just when you think you've heard them all!

Reading the book, i.e. publication 590, it speaks of a rollover (only) after receiving the funds, but before the 60 day window as we all know. And as many years as we've had IRA's with rollovers, I've never heard of such a case like this. From a financial standpoint it makes sense to lock in the rate. But I'm afraid to IRS opening an IRA with funds other than derived from the other one would be a prohibited transaction, least as far as taxpayer didn't qualify on his own merits during the tax year.

The only definite way to determine this I'm afraid is to request a letter ruling, which costs money.

Of course I'm looking forward to other opinions on this subject. ChEar$, Harlan Lunsford, EA n LA

I reached the same conclusion after going to the Code and regulations, which discuss rollovers in the context of the distribution, not the contribution. If you don't have the distribution in hand I don't see any possible way to roll it over.

The only solution to OP's situation I can think of is to do a real rollover contribution within 60 days of the distribution and "undo" the original one as an excess contribution. To leave things as they are would result in a taxable distribution plus an excess contribution.

For OP's sake I'll be quite happy if someone can prove us wrong.

I don't recall whose idea the original sequencing was, but if it originated with the bank I'd be making a strong (and loud in the lobby at high noon if necessary) argument that the bank waive the penalty for early termination of the CD.

There is no discussion in Pub 590 that would allow this treatment, since despite his intent he did not follow the rules. So, with no further action, he has both an early distribution and an excess contribution.

If this is the current year, since it is only May 5th, there is time to undo both actions for tax purposes (although the bank may levy a penalty on closing the CD early).

Otherwise, you could provide an explanation with the return when filed and hope for the best. It would be nice to know whether the bank will issue a 1099-R for the "annuity IRA" with code 1 or code G.

-Mark Bole

legitimately

Please don't ask the same question in multiple groups.

I believe the answer is "yes" -- or at least a "definite maybe". But what actually transpired is not as the bank describes it. Here is what I believe really happened.

1. You purchased a CD with personal funds.
2. You rolled over the K distribution into a qualified IRA.
3. The IRA acquired the CD by an exchange of funds for the CD.

Some open questions (in my mind) are: (a) whether or not the exchange in step #3 is a taxable event, subject to penalty for "early withdrawal" of the CD; and (b) whether or not the CD interest income for interim period between steps #1 and #2 should be paid to your personal SSN (i.e. it is taxable).

I am not qualified to comment. I can tell you that we did something very similar for my mother under the auspices of a CPA, with no tax consequences. Some bonds were held in a qualified pension plan to which my mother is the "survivor beneficial owner". (Not sure that's the right term.) The title of the bonds was transferred to my mother (i.e. her SSN, not the plan's EIN) in exchange for funds from her saving account, which were transferred into the pension plan.

Arguably, you are going in the reverse direction, so the issues of sheltering the interest and the potential "early withdrawal" of the CD may be different.

I suggest that you contact a CPA that specializes in personal tax matters. If in the final analysis, the bank misled you, you might want to contact an attorney about seeking compensation from the bank.