IRA Transfers & Rollovers

IRA Rollover

IRA-to-IRA Rollover Characteristics:

Constructive receipt of assets

Before the rollover, the IRA owner receives a distribution of the assets, meaning the check is made payable to the IRA owner. The owner can either keep the assets and claim the assets as income, or roll them over into an IRA.

Reporting requirements

Like any other IRA distribution, a distribution intended for rollover must be reported on Form 1099-R. For Traditional IRA distributions, financial organizations use code 1 (Early distribution, no known exception), or code 7 (Normal distribution), depending on whether the distribution recipient is under or over 59 1/2 years of age. If a spouse beneficiary rolls over assets from a deceased spouse's Traditional IRA, code 4 (Death) is used. For Roth IRA distributions, financial organizations use:

• Code Q for qualified distributions (other than for first-time home purchases).
• Code T for nonqualified distributions when the IRA owner is age 59 1/2 or older, disabled, or deceased.
• Code J if neither code Q nor T apply.

Upon completion of the rollover, the receiving financial organization reports the rollover contribution on Form 5498 in Box 2.

60-Day Rule

Recipients of eligible distributions generally have 60 days from the day they physically receive the assets to deposit them into an IRA. An IRA rollover contribution made by mail is considered timely if the envelope is postmarked by the 60th day.

IRA owner applied for waiver

IRA owners may apply to the IRS for a waiver of the 60-day rollover restriction under the private letter ruling (PLR) rules outlined in Rev. Proc. 2016-8. The PLR request fee for the wavier is $10,000. If approved, only the distribution amount (excluding earned interest) is eligible for rollover.

Automatic waiver if financial organization error

An automatic waiver of the 60-day restriction may apply if:

• The financial organization receives the assets on behalf of the IRA owner before the expiration of the 60-day rollover period.
• The IRA owner follows all procedures required by the financial organization for contributing the assets to an eligible IRA within the 60-day period.
• The assets are not deposited into an IRA within the 60-day rollover period solely due to financial organization error.
• The assets are deposited into an eligible IRA within one year from the beginning of the 60-day rollover period.
• If the financial organization had contributed the assets as instructed, it would have been a valid rollover. However, if the IRS later determines that the self-certification requirements were not met, the individual may be subject to additional taxes and penalties.

One per 12-month Rule

An IRA owner may not complete more than one rollover per 12 months per taxpayer. One year must pass after the date of receipt of the distribution before an IRA owner is eligible to roll over another distribution.

RMD Restriction

Even though an individual may transfer a Required Minimum Distribution (RMD), they may not roll over an RMD. In any year for which an IRA owner is required to take an RMD, the first assets distributed from the IRA are considered by the IRS to have satisfied that year's RMD. Only after the RMD is satisfied for the year may an individual roll over assets from one IRA into another IRA. RMDs that are rolled over become a regular contribution, and if the IRA owner is ineligible for the contribution, it will become an excess contribution.

Irrevocable Rollover Designation

Traditional and Roth IRA owners must irrevocably designate in writing at the time of the rollover deposit that the contribution is to be treated as a rollover. Many financial organizations find a rollover certification form helpful in satisfying this requirement.