Discussion:IRA Rollover, 20% withholding

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Discussion Forum Index --> Advanced Tax Questions --> IRA Rollover, 20% withholding


Discussion Forum Index --> Tax Questions --> IRA Rollover, 20% withholding

Sl130 (talk|edits) said:

28 January 2009
A client received a 403(b) distribution for $40k with 20% mandatory withholding. He received a check in the amount of 32k. In order to rollover the entire amount does he need to get the entire 40k into and IRA within 60 days?

Also, does the source of the money matter? For example, using the 32k check and 8k from a line of credit to count as the 40k rollover?

Thanks for the help.

Death&Taxes (talk|edits) said:

28 January 2009
As Kevin would say:

1. Yes

2. No

Blrgcpa (talk|edits) said:

28 January 2009
40K has to be rolled within 60 days.

That's why it's easier to make a custodian to custodian transfer. No taxes involved.

Lhhesscpa (talk|edits) said:

28 January 2009
D&T, I don't think that's correct. Do you have a cite for your position? The total distribution was $40k, $32k of which was rolled over and $8k was taxable. This latter amount is deemed received by the taxpayer since it will be applied to an account maintained by the IRS. If another $8k is contributed to the rollover IRA we now have a total of $48k to account for which is more than the distribution. I think the additional $8k would come under the rules for allowable IRA contributions for the current year. -- Larry Hess, CPA | Albuquerque, NM

Kevinh5 (talk|edits) said:

28 January 2009
Hi, D&T is correct. That is exactly what I would say. There - that is his cite.

Taxalmancer (talk|edits) said:

28 January 2009
I agree with D&T and Kevin and will see if I can find a cite.

Kevinh5 (talk|edits) said:

28 January 2009
you missed the humor, Taxalmanacer. I guess it was easy to miss.

Taxalmancer (talk|edits) said:

28 January 2009
I'm pretty sure I caught it Kevin(that you answer in yes and no manner?). I was just commenting to Lhhhess about trying to provide something more authoritative for him.

TaxFlake (talk|edits) said:

29 January 2009
Wait, no, yes, yes, I think I got it!

Q1: Yes

Q2: No

Example: Yes

Lhh: $8k would not be taxable if the whole $40k is rolled over timely.

TexCPA (talk|edits) said:

29 January 2009
Larry, clarifing your point, TP will have a 1099-R for 40k distribution, 32 cash and 8 FIT, I think TP still puts only 40k in a new/rollover account

[[1]]

TexCPA 00:43, 29 January 2009 (CST)

Taxcurmudgeon (talk|edits) said:

29 January 2009
Tex, can you tell me which item on that page is the authority for rolling over the additional $8k?

CATAXES (talk|edits) said:

29 January 2009
From IRS Pub 575.

You receive an eligible rollover distribution of $10,000 from your employer's qualified employee plan. The payer withholds $2,000, so you actually receive $8,000. If you want to roll over the entire $10,000 to postpone including that amount in your income, you will have to get $2,000 from some other source to add to the $8,000 you actually received.

If you roll over only $8,000, you must include the $2,000 not rolled over in your income for the distribution year. Also, you may be subject to the 10% additional tax on the $2,000 if it was distributed to you before you reached age 59½.

Taxalmancer (talk|edits) said:

29 January 2009
I haven't looked too long but even though I do not have a cite tp provide this moment, there are a dozen, or more, articles written about "indirect rollovers" that I could link if you wanted them.

Lhhesscpa (talk|edits) said:

29 January 2009
The actual authority is Reg. 1.402(c)-2, Q&A 11. I sure learned something valuable from this discussion. Thanks to all who prodded me, directly or indirectly. -- Larry Hess, CPA | Albuquerque, NM

Kevinh5 (talk|edits) said:

29 January 2009
That is our source of joy in life, LhhessCPA: to be the stick up someone's a%%.

Taxcurmudgeon (talk|edits) said:

30 January 2009
Kevin! That's rape! You need time off.

TexCPA (talk|edits) said:

30 January 2009
Larry, Good link!

TexCPA

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