Considering an indirect IRA rollover?

Under the indirect IRA rollover option, you take a distribution from one IRA that is paid to you individually and then you deposit the proceeds to the receiving IRA. This deposit is required to be completed within 60-days of you receiving the funds. We usually do not recommend the rollover option for the following reasons:

  • Unless you opt out of tax withholdings, 10% may be withheld from your indirect rollover. In this instance, in order to re-deposit the full amount you might have to come up with 10% before rolling over the full amount. 
  • Unlike direct transfers, in which case you are allowed an unlimited number, you are eligible for only one (1) indirect rollover per IRA during a 12-month period. If you perform more than one indirect rollover during the 12-month period for any of your IRAs, only the first rollover satisfies Internal Revenue Service’s (IRS’) rollover rules. The other rollover(s) would be considered ‘ineligible rollovers’, which means that amount would no longer be eligible to be held in your IRA and negative tax consequences can be incurred.
  • If you miss the 60-day deadline, the rollover would be considered an ‘ineligible rollover’ as well. In order to use the indirect rollover method, you must re-deposit, the same assets that you received in the distribution. For instance, if you receive a distribution of cash, you cannot use that cash to purchase stock or property and then subsequently rollover those assets in kind. Instead, the cash must be rolled over to maintain the tax deferred status of the funds. 
  • Improper reporting of the transactions on your tax return could result in follow-up inquiries from the IRS.
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