March 25, 2021 at 9:23 pm #17237
I withdrew a total of 160,000 from 2 separate IRAs (all cash) which I wish to re-deposit within the 60-day period allowed. Unfortunately, the withdrawals were in different lots – 40k+40k+10k = 90,000 from one IRA and 35k+15k+20k = 70,000 in the second one. From my readings it seems that after 2015 the IRS might allow only the tax-free re-deposit of a single withdrawal, largest one being 40,000 in my case? Is that true? Thanks for the help!March 25, 2021 at 11:25 pm #17254
Yes, it is true and violation can be very costly. The IRS decision was designed to stop serial lending from IRA accounts, which was never the intention of IRAs. You can only roll over one such distribution back to a TIRA account. If you requested the distributions from a single IRA account on the same day but the distribution came out on different days, there may be some leeway.
Otherwise, if you are still working or retired from the TSP and still have a TSP account, you could escape this rule by rolling any of the distributions to an employer plan that will accept IRA rollovers.
If you are not in a situation for the above solution, Plan B is to roll back the one larger distribution you legally can, and convert the other 120,000 to a Roth IRA. While this still results in taxes due, it eliminates the 10% penalty if you are under 59.5, and preserves the funds in a higher quality IRA, a Roth. The Roth has no RMDs and all gains are eventually tax free, and tax deferred within the Roth until the Roth is qualified. So there are many advantages over just keeping these funds in your taxable accounts, even though you get hit with a large tax bill for the 120,000 conversion.
If you are under 59.5, you also cannot withdraw the conversions for 5 years or you will owe the 10% penalty. This penalty disappears at 59.5, if that comes before the 5 years is up.March 26, 2021 at 12:07 am #17261
Thanks, Alan. That helps. I am well over 60 and retired, so no new IRA. And will plan on putting the remainder into my Roth, a move that I have been doing for the last three years, albeit at a slower pace. In one of the IRAs I withdrew 35k+15k = 50,000 on the same date, that should work as a “single withdrawal” I suppose? That would be the largest amount, and then on the remaining 110,000 I will pay tax (from different funds) and roll the 110k to the Roth.March 26, 2021 at 2:16 am #17278
If you requested the 50,000 at one time, you could treat it as a single distribution. If requested separately, for example at different times of the day, there is no specific guidance. The IRA custodian may or may not resist a roll back of both, but if they will take it, I would roll the 50,000 back, or to a different IRA if they resist. This is aggressive, but worth a try.March 26, 2021 at 5:04 am #17301
Thanks a ton, Alan!April 7, 2021 at 5:48 pm #20645
Update for Alan S. – Schwab willingly rolled over (returned to the IRA) the 50k which was withdrawn on the same date, even though there were two transaction on that date totaling 50k. Thanks!April 7, 2021 at 10:12 pm #20702
Good, and thanks for the update.
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