@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.
