rollover?

[taxfiler919]

Husband cashed out IRA and wife re-invested majority of amount in new IRA. How would this be handled when filing in Turbo Tax?

[PattiF]

The husband would receive a 1099-R for the withdrawal of the funds in his IRA.

If the wife contributed these funds to a new IRA for herself, she will receive a Form 5498 for the IRA contributions.

This is not a rollover of funds. The IRA is an individual retirement account and not a spousal retirement account. 

[macuser_22]

Explain what you mean by "wife re-invested majority of amount in new IRA"?  In another IRA in husbands name?  If husbands, was it done within 60 days of the distribution?

If in wife's name then it is a new contribution.

The maximum IRA contributions for 2021 is $6,000, or $7,000 if you’re age 50 or older by the end of the year; or your taxable compensation for the year which ever is less.

(Taxable compensation is generally wages that you worked for - W-2 or net self-employed income minus the deductible part of the SE tax, but can include commissions, certain alimony and separate maintenance, and nontaxable combat pay ).

[taxfiler919]

It was in wife's name and it is above the limit per the recommendation of a FP. So she is going to be taxed heavily on it. Right?

[taxfiler919]

What if it is was placed into an annuity (vs an IRA)? Does that make any difference?

[macuser_22]

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@taxfiler919 wrote:

What if it is was placed into an annuity (vs an IRA)? Does that make any difference?

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Is the annuity inside of the IRA or just an annuity in an ordinary brokerage account that has nothing  to do with an IRA?

If inside an IRA it makes no difference what the IRA invests in, anything over the contribution limits is an excess contribution and must be removed as s "Return of contribution" (not just a distribution) by the filing date of the years tax return (April 18, 2022 if a 2021 contribution) or Oct 15 2022 if an extension is filed or the 2021 tax return is timely filed by April 18 or it is subject to penalty.

[Opus 17]

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@taxfiler919 wrote:

What if it is was placed into an annuity (vs an IRA)? Does that make any difference?

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IRAs are individual accounts, it sounds like you improperly mixed funds between 2 people.

If money is withdrawn from John's account and deposited in Jane's account, then the withdrawal by John is fully taxable.  If John is under age 59-1/2, there will also be a 10% penalty for early withdrawal.   (It would only be a "rollover" if it was deposited into a different qualified account owned by John.)

If John wants it to be a rollover to different IRA owned by John (which would be a non-taxable rollover) then John has 60 days to get the money into the new account, possibly by borrowing money from some place else or getting the money out of the other investment.

If Jane buys any kind of investment with the money that is not an IRA or contained in an IRA, then Jane just bought an investment.  There is no particular penalty (besides the tax owed by John) and the income from the investment will be taxed to Jane according to whatever kind of investment it is.

If Jane contributed the money to an IRA, then her contribution limit is $6000, or $7000 if she is age 50 or over.  Jane must also have compensation from working, or John must have compensation from working, to allow Jane to contribute to an IRA.  Jane's contribution (up to $6000 or $7000) might be tax-deductible, depending on Jane and John's other tax situations.  Any excess IRA contribution by Jane to an IRA in Jane's name must be withdrawn as an "excess contribution" before the tax deadline of October 15, 2022 (for a 2021 contribution) or before October 15, 2023 (for a 2022 contribution).

If this happened in 2021 and it was not reported correctly on Jane and John's tax return, they might need to file an amended return.