Say the check was $500 plus they withheld $200. If he deposits $700 in a new IRA, can he avoid the penalty on early withdrawal from the first IRA.
He wanted to rollover but missed the notice from Fidelity that his IRA from previous employer was below minimum balance so would be cashed out.
If you didn't rollover your IRA distribution to a qualified account within the 60-day period, you'll be taxed on the distribution, and if you 're younger than 59 1/2, you'll have to pay the 10% early withdrawal penalty.
However, you can make a late rollover contribution – rollover after the expiration of the 60-day period - if you:
Please read this IRS FAQ for the details and conditions of the waivers.
Thank you. I am not concerned with the 60 day timeframe. This was all done in a matter of weeks.
What I am concerned with is if this qualifies as a rollover or not. Fidelity cashed out his IRA totaling $742. He received a check for $594, and $148 was withheld for taxes. So at this point we would have a premature distribution and a penalty would apply.
BUT he cashed the $594 check, then wrote a check to open a new IRA for $742.
In short, we had what looked like a premature distribution from an IRA with taxes withheld but then reinvested the full amount. Is that a rollover or considered a premature distribution (with penalty) and a new reinvestment.
If a rollover, how do i report that?
@vosmo1 wrote:
Thank you. I am not concerned with the 60 day timeframe. This was all done in a matter of weeks.
What I am concerned with is if this qualifies as a rollover or not. Fidelity cashed out his IRA totaling $742. He received a check for $594, and $148 was withheld for taxes. So at this point we would have a premature distribution and a penalty would apply.
BUT he cashed the $594 check, then wrote a check to open a new IRA for $742.
In short, we had what looked like a premature distribution from an IRA with taxes withheld but then reinvested the full amount. Is that a rollover or considered a premature distribution (with penalty) and a new reinvestment.
If a rollover, how do i report that?
First, it costs $10,000 to request a private letter ruling from the IRS, so I think you can forget about an extension of the 60 day rollover window.
If the $742 was deposited in the new IRA within 60 days, that counts as a rollover, BUT the new IRA custodian must be informed that it was a rollover and not a new contribution, so they report it properly on form 5498. (Form 5498 is not reported on a tax return, but it is sent to the IRS for their information.). If the deposit was reported as a new contribution by mistake, the new IRA custodian may or may not allow a correction, you have to ask them. If this is treated as a rollover, your son reports the withdrawal, and Turbotax will ask what he did with the money. When he says "I rolled over the entire $742" then the event is non-taxable and not subject to penalty.
If the deposit was made more than 60 days after the withdrawal, then the withdrawal is fully taxable and subject to a 10% penalty. The deposit is treated as a new contribution, and is tax deductible (assuming your son qualifies to make deductible IRA contributions) and the new contribution should offset the income tax from the withdrawal but will not offset the additional 10% penalty.
He put it in the new IRA within a couple weeks? Was it within 60 days or not? I don't think that's clear. Maybe post the dates received and deposited.
If he was within the 60 days, after you enter the 1099R it will ask what you did with it. Pick you moved the money to another account. Then that will expand and you pick I rolled over all this money. Then it will expand to enter how much you rolled over.
It was well within 60 days. Actually was 31 days from liquidation to reinvestment.
I believe you've answered my question. Thank you