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Rollover Contribution

Last Updated March 23, 2009

Definition

The redeposit of amounts that were distributed from a retirement account, to an eligible retirement plan.

  • A rollover contribution can be part of a direct rollover or an indirect-rollover.  The rollover portion of an indirect rollover must generally be completed within 60-days of the participant receiving the distributed property/assets.
  • Rollovers of eligible amounts that are completed  within the 60-day period are reportable, but not taxable.
  • Generally, rollover contributions must be made with the same property that was distributed from the retirement account. Exceptions apply to distribution of securities from a qualified plan, where the participant may sell those securities and rollover the cash proceeds. Under this exception, to rollover an eligible rollover distribution of property, the participant must either rollover the actual property distributed or sell it and rollover the proceeds. The participant cannot keep the distributed property and rollover cash or other property.
  • Rollovers between IRAs are limited to one rollover per 12-month period for an IRA. The IRS provides the following example in IRS Publication 590:

    You have two traditional IRAs, IRA-1 and IRA-2. You make a tax-free rollover of a distribution from IRA-1 into a new traditional IRA (IRA-3). You cannot, within 1 year of the distribution from IRA-1, make a tax-free rollover of any distribution from either IRA-1 or IRA-3 into another traditional IRA.

    However, the rollover from IRA-1 into IRA-3 does not prevent you from making a tax-free rollover from IRA-2 into any other traditional IRA. This is because you have not, within the last year, rolled over, tax-free, any distribution from IRA-2 or made a tax-free rollover into IRA-2.

Exception.   There is an exception to the rule that amounts rolled over tax free into an IRA cannot be rolled over tax free again within the 1-year period beginning on the date of the original distribution. The exception applies to a distribution which meets all three of the following requirements.

  1. It is made from a failed financial institution by the Federal Deposit Insurance Corporation (FDIC) as receiver for the institution.
  2. It was not initiated by either the custodial institution or the depositor.
  3. It was made because:
    1. The custodial institution is insolvent, and
    2. The receiver is unable to find a buyer for the institution.

Referring Cite

IRC § 402(c)(3), IRC § 408(d)(3), Treas. Reg. § 1.401(a)(31)-1,

Additional Helpful Information

  • Exceptions to the 60-day rollover rule:
    • In cases where a distribution from an IRA is intended to be used for first-time home-buyer purposes, the 60-day period is extended to 120-days, providing  the rollover is being made because the transaction did not occur  by reason of a delay or cancellation of the purchase or construction of the residence
    • Section 644 of the Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA"), added a new provision to the tax Code to permit the Secretary to waive the 60-day rollover requirement "where the failure to waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to such requirement."
  • The same property that was distributed from an IRA must be rolled over. An individual who distributed cash and rollover property was treated as not completing a property rollover---resulting in the amount being taxable [ 110 T.C. No. 11 Lemishow Vs Commissioner ]