A
A.G. Kalman
IRC Sec 408(d)(3)(B) is where one finds the rule that limits
IRA to IRA tax-free rollovers to only one during any 12
month period. Any distribution from the IRA account from
which the funds were withdrawn or any distribution from the
IRA into which the funds were rolled would be a taxable
distribution. There is an exception to this rule which is
not relevant to my query.
Assume for this purpose that the taxpayer has no cost basis
in the IRA account and also has no earned income for the
year.
Let's say that someone who is ignorant of this rule violates
it and makes two trustee to trustee rollovers in the 12
month period (IRA A to IRA B and IRA B to IRA C). The
distribution from A to B is tax-free. The distribution from
B, I believe is taxable for both the rolled over amount and
any earnings.
My question is what is the status of the funds that now sit
in IRA C? If the distribution from B was taxable, are these
funds
1. An excees contribution subject to 6% tax or
2. An IRA with a cost basis equal to the taxable income or
3. An IRA with no cost basis and therefore subject to being
taxed again upon distribution?
And.... what if they roll over the balance from IRA C
(deposit plus earnings) to IRA D, also within the same 12
month period. Is this taxable and how much is taxable?
The above is not theoretical. I have just become aware of
an individual who is doing just this by shopping for
interest rates.
Alan
http://taxtopics.net
IRA to IRA tax-free rollovers to only one during any 12
month period. Any distribution from the IRA account from
which the funds were withdrawn or any distribution from the
IRA into which the funds were rolled would be a taxable
distribution. There is an exception to this rule which is
not relevant to my query.
Assume for this purpose that the taxpayer has no cost basis
in the IRA account and also has no earned income for the
year.
Let's say that someone who is ignorant of this rule violates
it and makes two trustee to trustee rollovers in the 12
month period (IRA A to IRA B and IRA B to IRA C). The
distribution from A to B is tax-free. The distribution from
B, I believe is taxable for both the rolled over amount and
any earnings.
My question is what is the status of the funds that now sit
in IRA C? If the distribution from B was taxable, are these
funds
1. An excees contribution subject to 6% tax or
2. An IRA with a cost basis equal to the taxable income or
3. An IRA with no cost basis and therefore subject to being
taxed again upon distribution?
And.... what if they roll over the balance from IRA C
(deposit plus earnings) to IRA D, also within the same 12
month period. Is this taxable and how much is taxable?
The above is not theoretical. I have just become aware of
an individual who is doing just this by shopping for
interest rates.
Alan
http://taxtopics.net