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Posted by joeu2004 on May 6, 2008, 5:50 pm
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> 54 year old taxpayer has $50K in an IRA Annuity account.
> [....] He then withdraws $50K from his savings account and
> uses it to open the 50K IRA CD [...]. Bank codes the CD
> as an IRA CD with externally provided 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)?
I believe the answer is "yes" -- or at least a "definite maybe".
But what actually transpired is not as the bank describes it.
Here is what I believe really happened.
1. You purchased a CD with personal funds.
2. You rolled over the $50K distribution into a qualified IRA.
3. The IRA acquired the CD by an exchange of funds for the CD.
Some open questions (in my mind) are: (a) whether or not the
exchange in step #3 is a taxable event, subject to penalty for
"early withdrawal" of the CD; and (b) whether or not the CD
interest income for interim period between steps #1 and #2
should be paid to your personal SSN (i.e. it is taxable).
I am not qualified to comment. I can tell you that we did
something very similar for my mother under the auspices of a
CPA, with no tax consequences. Some bonds were held in a
qualified pension plan to which my mother is the "survivor
beneficial owner". (Not sure that's the right term.) The title of
the bonds was transferred to my mother (i.e. her SSN, not the
plan's EIN) in exchange for funds from her saving account,
which were transferred into the pension plan.
Arguably, you are going in the reverse direction, so the issues
of sheltering the interest and the potential "early withdrawal" of
the CD may be different.
I suggest that you contact a CPA that specializes in personal
tax matters. If in the final analysis, the bank misled you, you
might want to contact an attorney about seeking compensation
from the bank.
--
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