Repaying an IRA in the following tax year

[macuser_22]

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@crafty redhead wrote:

 You are allowed one distribution you can pay back a year, so even though I paid back the $2500 and $1700 before the 60 days, I can only count the $2500. Make sense?

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No.  You said that this was *2015*.   The one rollover  per year rule is for 2018 rollovers and later.   For 2015 you can rollover as many distributions that you want.

Now you are adding additional information.  I am answering about the *Federal* tax return, I know nothing about NY  and their rules.  State taxes can be different than Federal tax. I cannot help with NY tax.

[crafty redhead]

*faints*

well, then the taxes I had submitted for 2015 are already correct! I put in the rollover amounts that I paid back within 60 days (I hadn't paid back the whole $6600) but IRS billed me for tax on the whole $6600. So I'm sure the deadline for a federal refund has passed and probably for NY too. 

[crafty redhead]

are you a tax professional, or just someone who knows a lot of stuff? 🙂

[dmertz]

@macuser_22, you are confusing IRA rollovers with recharacterizations of Roth conversions.

Assuming that all of the distributions were from the same IRA, the rollover limitation has been in place since the beginning.  Beginning with 2015, the limitation applies to all accounts in aggregate rather than per account as was the case or distributions prior to 2015.

Apparently the $2,500 distribution was rolled over within 60 days, prohibiting the rollover of any other distributions.  The rollover of the $1,700 distribution therefore constitutes a regular contribution, not a rollover contribution, and resulted in an excess contribution to the IRA to the extent that the deposit of the $1,700 exceeded the amount that you were eligible to contribute as a regular contribution for the year of the deposit (reportable as a regular contribution on the tax return for the year in which the deposit was made).  Unless you obtained a return of contribution for any amount of the $1,700 deposit that was an excess contribution, you have and excess contribution subject to penalty to consider.

Wells Fargo apparently mistakenly treated this as a nonreportable trustee-to-trustee transfer where the custodian of the original IRA makes the payment directly to the receiving IRA.  If this money was going back to the same account, Wells Fargo clearly botched this by not treating it as a rollover contribution.  It's also clear that this will require substantial explanation to the IRS given Wells Fargo's failure to handle this properly.

Let us know if any of the $1,700 was eligible to be treated as a regular contribution for the year it was deposited or for some future year.

[macuser_22]

@dmertz -  yes the rollover rule is not new and I was confusing it.  Thanks for the clarification.

[crafty redhead]

oh I've been getting **bleep**ty information from Wells Fargo on this whole thing since day 1. Up until 2015 I'd never taken any money out of an IRA before, let alone taken money out and put it back in. But I had discovered you could do that, and I asked WF, if I could in fact take it out in chunks and pay it back in chunks, and was told, "yes as long as you repay it in the exact amounts you took it out" (so if I took a chunk $2500 the repayment would have to be $2500, etc) but they completely neglected to tell me the part about needing to categorize it as a rollover. and again I spoke to several people who all told me the same thing. and after I got notified from the IRS  I again called WF, several times, and was told, "we can't do anything for you, there are no papers we can send you" but it seems they messed up by not declaring what I paid back a rollover (but telling me I messed up by not declaring it rollover), but why would I have? when none of the people told me otherwise. I'm so beyond frustrated by this whole thing. All have are my bank statements from 2015 (and it took months to get them from WF) showing what was done, but at this point it might be too late to do anything and I will just have to pay the remainder with interest. This debacle is one of the reasons I no longer manage my IRA with WF (and only keep basically a shell account with them). 

[crafty redhead]

no, the $1700 didn't result in overage for contributions. Everything I put in my account, including distribution paybacks, was counted as contributions, and since Wells Fargo messed up, I was taxed on ALL of it. 

[macuser_22]

WF told you wrong.  Here is the IRS regulation for this from Pub 590A (2015 version), page 2 that user dmertz referred to.

https://www.irs.gov/pub/irs-prior/p590a--2015.pdf

Application of one rollover per year limitation. Beginning in 2015, you can make only one rollover from an IRA to another (or the same) IRA in any 1-year period regardless of the number of IRAs you own. However, you can continue to make unlimited trustee-to-trustee transfers between IRAs because it is not considered a rollover. Furthermore, you can also make as many rollovers from a traditional IRA to a Roth IRA (also known as “conversions”). For more information, see Can You Move Retirement Plan Assets? in chapter 1

[crafty redhead]

yup, they're pretty dumb all around. So glad I no longer bank with them. 

[dmertz]

With regard to the $1,700, if you treated it as a regular contribution for the year it was deposited (supported by sufficient compensation for that year) then you would have received a deduction for the contribution on Form 1040 line 32 or Form 1040A line 17 (unless it was forced to be a nondeductible contribution on Form 8606 due to your modified AGI and being covered by a workplace retirement plan).  This deduction would offset the inclusion of the $1,700 in taxable income, but would not offset a 10% early-distribution penalty if you were under age 59½.  Given that you seem to be learning about all of this only now, I'm a bit skeptical that you have reported everything correctly unless that's what you are doing now by amending your 2015 tax return (and perhaps your 2016 tax return if that's the year for which this is considered to be a regular contribution).  Again, since Wells Fargo did not produce Forms 5498 that show the correct amount of rollover contribution and regular contributions, you'll need to provide substantial explanation to the IRS regarding the true nature of these transactions.