Revenooers Get Tough on 60 Day IRA Rollover Rule
Recall that there is no tax event if distributions from a traditional IRA are rolled over into another IRA within 60 days of receipt of the distribution, and there has been no more than one such distribution/roll over within a one year period. In short, the law allows a bloke to essentially “borrow” the dough from his IRA, using it for whatever he wants/needs, as long as he follows these rules.
And in fact, the Revenooers have shown some restraint in enforcing the 60 day time limit, and have been known to waive the rule when a taxpayer has been a bit tardy in putting the money back, albeit after the 60 day time limit. Inability to complete the timely rollover due to death, disability, hospitalization, incarceration, and even errors committed by a financial institution (such as some administrative delay in getting the papers all shuffled on time) can be considered by IRS.
So here comes a lady who fell and broke her shoulder in 2008, and at about the same time, began showing signs of mental impairment, leading her doctor to suggest she move into an assisted living facility. And her finances were apparently such that the only feasible way for her to raise the money for the institutional care was to sell her house. In the mean time, she withdrew the dough from her IRA in order to meet the immediate requirement to establish a contractual relationship with the facility, though the eventual sale of the house (which she was counting on to provide the cash to return to IRA status) took a little longer than expected – something like 2-1/2 months to be exact. Thus she blew the 60 day rollover requirement.
“Tough,” said IRS – no waiver of the 60 day rule for you, sister. Their conclusion: when the taxpayer withdrew the funds and essentially used them as a short-term loan, she assumed the risk that they might not be returned timely, and no evidence was presented (to the Revenooers’ satisfaction) regarding applicability of any of the “excuse” factors in her case.
Case closed – pay up!
And speaking of paying, you California residents out there, the Tax Foundation reminds you that you carry the fourth largest tax burden of any state, causing you to pay 11.2 percent of your income in state and local taxes in 2010. And that credential is even better than the one you wore in 2009, when California ranked fifth in the nation, with an average tax burden of a mere 11 percent.
Put that in your pipe and smoke it, as you ponder Jerry Brown’s Proposition 30, on this year’s ballot, which will further increase the marginal tax rate for the wealthier of you to 13.3 percent, and also increase sales taxes.
CONSULT YOUR TAX ADVISOR – This article contains general information about various tax matters. You should consult your CPA regarding the implications to your own particular situation.
Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno. He can also be reached at 831-7288, welcomes comments at firstname.lastname@example.org, and invites readers to consider his other commentary at http://blog.nolo.com/taxes.