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Posted by Fred on May 5, 2008, 2:36 pm
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54 year old taxpayer has $50K in an IRA Annuity account. The Annuity is
with an insurance company, but his bank has handled all administrative
aspects for him. Taxpayer decides to pull the money out and roll it over
into an IRA CD. On May 1st, taxpayer fills out and submits a form to the
bank requesting liquidation of the annuity funds. Bank tells him it will
take approximately two weeks for the funds to be disbursed. Bank also
informs him of an IRA CD offering with a very favorable rate, but they tell
him the rate will expire on May 5th - before the funds from the Annuity IRA
are expected to be received. So on the request for funds disbursement from
the annuity, bank suggests he request the funds be sent directly to him,
knowing that the IRS will allow him to have the funds for 60 days before he
has to roll them over. He then withdraws $50K from his savings account and
uses it to open the 50K IRA CD since he doesn't want to lose the good rate.
Bank codes the CD as an IRA CD with externally provided funds. He opens the
IRA CD on May 2nd, one day after he requested liquidation of the Annuity
IRA, but before he has actually received the funds. When funds from the
annuity disbursal are eventually received on May 15th, taxpayer take the
proceeds and put them back into his savings account.
If he does the above steps in the exact sequence noted, can he legitimately
report the transaction on his 1040 as an IRA rollover (and thus, not subject
to any penalties)?
--
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<< that may be imposed upon the taxpayer. >>
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Posted by Harlan Lunsford on May 5, 2008, 4:14 pm
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Fred wrote:
> 54 year old taxpayer has $50K in an IRA Annuity account. The Annuity is
> with an insurance company, but his bank has handled all administrative
> aspects for him. Taxpayer decides to pull the money out and roll it over
> into an IRA CD. On May 1st, taxpayer fills out and submits a form to the
> bank requesting liquidation of the annuity funds. Bank tells him it will
> take approximately two weeks for the funds to be disbursed. Bank also
> informs him of an IRA CD offering with a very favorable rate, but they tell
> him the rate will expire on May 5th - before the funds from the Annuity IRA
> are expected to be received. So on the request for funds disbursement from
> the annuity, bank suggests he request the funds be sent directly to him,
> knowing that the IRS will allow him to have the funds for 60 days before he
> has to roll them over. He then withdraws $50K from his savings account and
> uses it to open the 50K IRA CD since he doesn't want to lose the good rate.
> Bank codes the CD as an IRA CD with externally provided funds. He opens
> the
> IRA CD on May 2nd, one day after he requested liquidation of the Annuity
> IRA, but before he has actually received the funds. When funds from the
> annuity disbursal are eventually received on May 15th, taxpayer take the
> proceeds and put them back into his savings account.
>
> If he does the above steps in the exact sequence noted, can he legitimately
> report the transaction on his 1040 as an IRA rollover (and thus, not
> subject
> to any penalties)?
>
Just when you think you've heard them all!
Reading the book, i.e. publication 590, it speaks of a rollover (only)
after receiving the funds, but before the 60 day window as we all know.
And as many years as we've had IRA's with rollovers, I've never heard of
such a case like this. From a financial standpoint it makes sense to
lock in the rate. But I'm afraid to IRS opening an IRA with funds
other than derived from the other one would be a prohibited transaction,
least as far as taxpayer didn't qualify on his own merits during the tax
year.
The only definite way to determine this I'm afraid is to request a
letter ruling, which costs money.
Of course I'm looking forward to other opinions on this subject.
ChEar$,
Harlan Lunsford, EA n LA
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by Phil Marti on May 5, 2008, 4:41 pm
Please log in for more thread options "Harlan Lunsford" wrote:
> Reading the book, i.e. publication 590, it speaks of a rollover (only)
> after receiving the funds, but before the 60 day window as we all know.
> And as many years as we've had IRA's with rollovers, I've never heard of
> such a case like this. From a financial standpoint it makes sense to lock
> in the rate. But I'm afraid to IRS opening an IRA with funds other than
> derived from the other one would be a prohibited transaction,
> least as far as taxpayer didn't qualify on his own merits during the tax
> year.
I reached the same conclusion after going to the Code and regulations, which
discuss rollovers in the context of the distribution, not the contribution.
If you don't have the distribution in hand I don't see any possible way to
roll it over.
The only solution to OP's situation I can think of is to do a real rollover
contribution within 60 days of the distribution and "undo" the original one
as an excess contribution. To leave things as they are would result in a
taxable distribution plus an excess contribution.
For OP's sake I'll be quite happy if someone can prove us wrong.
I don't recall whose idea the original sequencing was, but if it originated
with the bank I'd be making a strong (and loud in the lobby at high noon if
necessary) argument that the bank waive the penalty for early termination of
the CD.
--
Phil Marti
Clarksburg, MD
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by Mark Bole on May 5, 2008, 4:50 pm
Please log in for more thread options Fred wrote:
> 54 year old taxpayer has $50K in an IRA Annuity account.
[...]
> He opens
> the
> IRA CD on May 2nd, one day after he requested liquidation of the Annuity
> IRA, but before he has actually received the funds. When funds from the
> annuity disbursal are eventually received on May 15th, taxpayer take the
> proceeds and put them back into his savings account.
>
> If he does the above steps in the exact sequence noted, can he legitimately
> report the transaction on his 1040 as an IRA rollover (and thus, not
> subject
> to any penalties)?
There is no discussion in Pub 590 that would allow this treatment, since
despite his intent he did not follow the rules. So, with no further
action, he has both an early distribution and an excess contribution.
If this is the current year, since it is only May 5th, there is time to
undo both actions for tax purposes (although the bank may levy a penalty
on closing the CD early).
Otherwise, you could provide an explanation with the return when filed
and hope for the best. It would be nice to know whether the bank will
issue a 1099-R for the "annuity IRA" with code 1 or code G.
-Mark Bole
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
|
|
Posted by D. Stussy on May 5, 2008, 5:30 pm
Please log in for more thread options > 54 year old taxpayer has $50K in an IRA Annuity account. The Annuity is
> with an insurance company, but his bank has handled all administrative
> aspects for him. Taxpayer decides to pull the money out and roll it over
> into an IRA CD. On May 1st, taxpayer fills out and submits a form to the
> bank requesting liquidation of the annuity funds. Bank tells him it will
> take approximately two weeks for the funds to be disbursed. Bank also
> informs him of an IRA CD offering with a very favorable rate, but they
tell
> him the rate will expire on May 5th - before the funds from the Annuity
IRA
> are expected to be received. So on the request for funds disbursement
from
> the annuity, bank suggests he request the funds be sent directly to him,
> knowing that the IRS will allow him to have the funds for 60 days before
he
> has to roll them over. He then withdraws $50K from his savings account
and
> uses it to open the 50K IRA CD since he doesn't want to lose the good
rate.
> Bank codes the CD as an IRA CD with externally provided funds. He opens
the
> IRA CD on May 2nd, one day after he requested liquidation of the Annuity
> IRA, but before he has actually received the funds. When funds from the
> annuity disbursal are eventually received on May 15th, taxpayer take the
> proceeds and put them back into his savings account.
>
> If he does the above steps in the exact sequence noted, can he
legitimately
> report the transaction on his 1040 as an IRA rollover (and thus, not
subject
> to any penalties)?
Please don't ask the same question in multiple groups.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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