Multiple IRA rollovers in one year

Forum|Forum|5 years ago
March 9, 2021
4 replies
31 views

taxpayer wasn't happy with IRA performance, so she closed IRA and took the check to a new provider. Then she didn't like that one, so she closed IRA and took the check to a third provider. I know that only one transfer per year is allowed, so the one is fine. On the second distribution I can mark as non-rollover and the tax will calculate correctly. The taxpayer took a small distribution from 3rd provider, which shouldn't have been an IRA. Two questions -

1 - What do I do about the distribution on the 3rd one?

2 - I know she has to withdraw the IRA as she contributed way more than the allowed amount - zero since she has no earned income. Is that reported on the tax return, and if so where? Is it on Form 5329?

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qbteachmt

Level 15

"I know that only one transfer per year is allowed,"

Think of it as "direct or indirect."

Transfers between the trustees, or direct, are not counted.

But every time she took the money, "touched it" first, that means it was an indirect = went through her hands, first.

And you stated the deposit for the third event was just as a brokerage or savings account, then. So, the answer to Q1 = just regular banking. Not a distribution, but a withdrawal. If there wasn't enough of a cash balance in a brokerage account, then something gets sold to accommodate the withdrawal, and there will be a 1099-B.

Question 2 answer: none of a Rollover is considered to be Contribution. These are two different ways money goes into IRA accounts. If there was not also more money put in, for the second deposit, or put into the initial account in the first place, you have no contribution in what you described.

But you also might be overlooking, if this is for 2020, there is a specific provision for "take it out, then put it back" that is Not counted against the once-a-year provision, due to covid as disaster.

Don't yell at us; we're volunteers

qbteachmt

Level 15

Oh, I overlooked who you stated this: "from 3rd provider, which shouldn't have been an IRA."

Shouldn't Have Been, has nothing to do with Reality. What type of account was this, when it got created?

And it would really help if you stated not just IRA, but Traditional or Roth.

Make sure to read the cares act for RMD and distribution rollover rules that are specific to 2020. You might be understanding the step-by-step incorrectly for the tax year provisions.

Don't yell at us; we're volunteers

G

gary1861Author

Level 5

The 3rd account title is IRA....FBO (client).... So yes it was set up as an IRA account. Seems that client was working with a financial advisor - for what that is worth. Yes, it was a traditional IRA. No she didn't put back the RMD by August 31, 2020, since this last withdrawal/transfer, etc. didn't happen until after that date. Sorry if I wasn't clear on the transactions.

As for #2, I now understand that if she withdraws the money prior to 4/15, that "excess contribution" doesn't get reported on the tax return.

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