Accidental Traditional IRA Rolloiver

[macheung]

I've processed the return of excess contributions from the 2nd and 3rd Prudential IRA distributions back into my Vanguard brokerage account.  Can I use funds from that same Vanguard account to complete the Roth conversion?  I don't think I can roll over the return of excess contributions, but I have enough funds in the brokerage account to fund the conversion without using the excess contribution distribution.  For instance, if the returned excess contribution was $50K and I have and additional $75K in the brokerage account (for a total account balance of $125K), could I use $50K of that $75K to complete the indirect ROTH conversion without any adverse tax consequences?

[dmertz]

It doesn't matter where the funds come from.  Cash is fungible.  You are converting the original distributions from the traditional IRAs, not the returns of contributions.

[rdh]

This may not be an issue but just checking.  I completed an electronic request with Fidelity to transfer my Transamerica traditional IRA to my Fidelity IRA (Traditional IRA) on 27 Sep. In the process, Transamerica requested I sign a document to terminate the IRA as part of the process. All seems to be going well because the cash position and the mutual funds and ETFs transferred via ACAT directly from Transamerica to Fidelity but the mutual funds all came over as whole number of shares.  They appeared in my Fidelity as they should (the same mutual funds, etc) but as whole numbers of shares in each.  The residual fractions of shares are still sitting in Transamerica but today (3 Oct) they were sold and appear as a cash position (not a huge sum).  I was told (by Transamerica) that they would also transfer to Fidelity directly after a "sweep" and I don't need to do anything.  I think Transamerica's terminate form had the "terminate the account and liquidate the assets" box checked on their form but they told me that is how they do it.

If the residual cash comes directly over to my Fidelity IRA in the next few days, am I ok as far as the transfer rules?  

Transamerica also told me there won't be a 1099 R generated.  I don't have to report this, right?

[dmertz]

It's a bit odd that they did not transfer the fractional shares since there is really in nothing that would prevent them from doing so (unless Transamerica has a concern that they may carry more decimal places than Fidelity, in which case there would be a round-off error, but there are almost always round-off errors on the order of a penny when converting between fractional shares and dollars, so why would it matter).

Regardless, there is no problem.  Transactions within the IRAs are nonreportable, and the initial partial transfer and the subsequent full transfer are nonreportable.  There is no distribution or rollover, so there is no concern about triggering the one-rollover-per-12-months limitation.

In addition to Transamerica not issuing a Form 1099-R for this transfer, Fidelity will not report a rollover on Form 5498.  Nothing about the transfer goes on any tax return.

[rdh]

Thanks for the information.  That's how I was interpreting it.  Waiting to see today what happens to the residual, which is a small amount of cash in the Transamerica IRA (as of early this morning).  It should transfer automatically according to the Transamerica agent.