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Old 04-10-2014, 05:37 AM
 
Location: zippidy doo dah
895 posts, read 1,331,660 times
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IRA rollover ruling stuns advisers and savers- MSN Money

Say it ain't so, Joe! (and looking at my title on this thread, a "ruling ruling" is certainly not a typo but instead a really really bad ruling LOL)

Has anyone else read this article concerning multiple IRA accounts, rollovers and the 20 year misunderstanding of what the tax guide says and what the tax law actually is? ("misunderstanding" is such a gentle word)

I've seen others on this forum write about using different IRA accounts essentially for a short term/60 day loan whereupon one rolls the amount back into an IRA (not one already set up) and then taps another IRA for another short term loan within that 12 month period (not a calendar year but dating from the initial withdrawal).

It appears that the IRS-produced Pamphlet 590 governing IRAs that most taxpayers would follow stated that as long as the funds were from a different IRA, one could do multiple rollovers within a 12 month period and not have them count as a distribution as long as the funds were reinvested within the 60 day period.

Per a case recently settled in tax court, it was acknowledged that the wording in the Pamphlet 590 conveyed a different interpretation of the law than the IRS Tax Code dictates and thus the taxpayer in this case owed a great deal of money as well as penalties. The Pamphlet is being rewritten to correctly state the actual law which is that a distribution from any individual IRA apparently applies to all of one's IRAs and the withdrawal then from a second IRA within that 12 month period would constitute a distribution. Errors in IRS publications do not protect the taxpayer who follows the inaccurate information.

Since I've seen others mention using this strategy and I am presently scratching my head saying "WTF" (sorry, there are no other acronyms to describe what I am thinking at this point), I would suggest that everyone take a look at the article . Filing deadline looms...............

Figure this belongs in retirement and not finance since it's likely that we post 59 and 6 months may be the most impacted.............................

My apologies if the article is wrong, or this is information that everyone but me already knew, or if my understanding of what I Just read is somehow the result of being on the internet at 4 in the morning.
(I searched to see if this topic has been covered, but by golly, I couldn't find any reference ) Please please please someone tell me I'm wrong.!!!!!

Last edited by mzfroggez; 04-10-2014 at 05:41 AM.. Reason: keyboard stutter...............
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Old 04-10-2014, 07:06 AM
 
8,201 posts, read 11,915,499 times
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Quote:
Originally Posted by mzfroggez View Post
I've seen others on this forum write about using different IRA accounts essentially for a short term/60 day loan whereupon one rolls the amount back into an IRA (not one already set up) and then taps another IRA for another short term loan within that 12 month period (not a calendar year but dating from the initial withdrawal).

<snip>

Please please please someone tell me I'm wrong.!!!!!
Interesting article, but is this really that big of an issue? Are there many people who actually take multiple 60-day "loans" from their multiple IRAs? You say that you've seen otrhers on this forum write about doing so, but I must have missed those posts/threads.

I guess I'm out of the loop on this one. I don't even understand why people would have multiple IRA accounts much less make multiple rollovers from them where they actually take the money for 60 days. (Keep in mind, this case has absolutely nothing to do with making multiple direct rollovers where the person never touches the money.)

Speaking of the case itself, the Tax Court decision itself makes interesting reading. Apparently, this wasn't even the main original issue for which the case went to court. One issue was that the husband (who is a tax attorney, btw) took two separate withdrawals from the same Fidelity IRA account on the same day in April 2008 because he wanted to take money out of different investments. The IRS wanted to treat this as two separate distributions, but the Tax Court ruled against the IRS. Another reason this went to the Tax Court initially was that the wife also took a $65k distribution from her Fidelity IRA but only made a partial $40k repayment, and didn't do that until the 61st day. (She maintained that Fidelity screwed up somehow in not making the additional $25k repayment, but never provided any proof. It was moot anyway since she was a day late.) The husband also took another distribution from a different Fidelity IRA in June 2008, but the IRS didn't originally make this an issue. It wasn't until their reply brief that they raised the issue of distributions from separate IRAs in the same year, and that's what led the Tax Court to make this major ruling.

As I noted above, this has all been interesting reading, but I find it difficult to believe that it really is that big of an issue for many people.
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Old 04-10-2014, 10:17 AM
 
1,227 posts, read 1,260,355 times
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It's a very big deal. The reason is because taxpayers use the IRS publications to understand and follow tax law. The ruling, in effect, says that dependence upon the Internal Revenue Service to explain it's own tax codes is not a defense if the IRS is wrong. The IRS has a zillion publications... do you honestly think this is their only error?

Secondly, many people have multiple IRA's and a rollover is the movement of funds between 2 types of retirement plans that may be different where the taxpayer receives the money and deposits it into another IRA account within 60 days. This is opposed to an IRA transfer, which is the movement of funds between the same type of IRA accounts where the fiduciaries (banks, etc.) receive the money and the taxpayer (IRA owner) never touches it.

For instance, Let us say that I have a 401(k) and also a Traditional IRA in a 1 year CD. I have had my Traditional IRA before I ever started working for a company that offered a 401(k). In year 2 I put money into a Traditional IRA 1 year CD. In year 3 I am let go from work. I can rollover my 401(k) into a new IRA CD (if my old CD hasn't matured). In year 4 I can rollover my first CD into my second CD but I can't roll over my 3rd CD until the next year. So, in effect, it is going to take me years to get all of my money into 1 IRA CD.

An IRA transfer is the safest to do because only the fiduciaries receive the money so the taxpayer has no tax burden.
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Old 04-10-2014, 11:51 AM
 
10,817 posts, read 8,065,019 times
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Here's a more in-depth look at it, from Motley Fool:

Don't Panic Over This IRA Rollover Case
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Old 04-10-2014, 11:58 AM
 
8,201 posts, read 11,915,499 times
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Quote:
Originally Posted by LookingatFL View Post
It's a very big deal. The reason is because taxpayers use the IRS publications to understand and follow tax law. The ruling, in effect, says that dependence upon the Internal Revenue Service to explain it's own tax codes is not a defense if the IRS is wrong. The IRS has a zillion publications... do you honestly think this is their only error?
Of course not. But that aspect of the ruling is not new. It has been well established for decades that IRS (or any federal agency for that matter) guidance is not binding if it is contrary to law.
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Old 04-10-2014, 12:19 PM
 
29,782 posts, read 34,871,258 times
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My previous read on the topic focused on back taxes possibly owed
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Old 04-10-2014, 02:04 PM
 
48,516 posts, read 83,943,432 times
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Even the IRS doesn't fully understand their rules which haven't even been available for that long to anyone else. But rules or not the supreme court long ago ruled that relying on a reasonable authority is a defense to prosecution; no matter the offense. Reasonable means a reasonable person would reasonably rely on the authorities advise. Like all defenses in law its has to be proven ;not just a claim .Basic reason we have courts.
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Old 04-10-2014, 02:43 PM
 
29,782 posts, read 34,871,258 times
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Quote:
Originally Posted by texdav View Post
Even the IRS doesn't fully understand their rules which haven't even been available for that long to anyone else. But rules or not the supreme court long ago ruled that relying on a reasonable authority is a defense to prosecution; no matter the offense. Reasonable means a reasonable person would reasonably rely on the authorities advise. Like all defenses in law its has to be proven ;not just a claim .Basic reason we have courts.
And lawyers charging fees. Winning is not always free .
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