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Author: WalStMonky Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121061  
Subject: Roth rollover Date: 12/17/2001 10:38 PM
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OK, so I withdrew the funds from my Roth, had them withhold enough to get to the safe harbor, and will roll it over into another Roth IRA. I know this must be done within 60 days. My question is, if I wait to 2002 to deposit the funds into the new Roth IRA, will I take care of this all on this year's return or will it need to be addressed in both years? The withdrawl was less than my contributions, so I don't believe I'll have any tax liability.
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Author: dharmadollars Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 56095 of 121061
Subject: Re: Roth rollover Date: 12/17/2001 11:53 PM
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It's unclear whether you're talking about a withdrawal or simply a rollover. "OK, so I withdrew the funds from my Roth, had them withhold enough to get to the safe harbor, and will roll it over into
another Roth IRA." If it's a rollover, done within the prescribed 60 days, it is not a taxable event, simply a repositioning from one Roth account to another Roth account. By taking custody of the assets instead of having them transferred directly (a trustee-to-trustee transfer) you have exercised a privilege that can be done only once per calendar year, if I recall correctly. By deferring the deposit until 2002 you use up two years worth by initiating the process in one calendar year and completing it in the second year.

You also note that "...The withdrawl was less than my contributions, so I don't believe I'll have any tax liability." The amount put in motion should not constitute a taxable event, regardless of how much it is, as long as it is housed in another IRA account within the prescribed time period.

The long and short of this is that you are in fact doing nothing more with the money than transferring it from one custodian to another custodian. That's why it is not considered to be a taxable event.

Regards--dharmadollars

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 56097 of 121061
Subject: Re: Roth rollover Date: 12/18/2001 12:44 AM
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By taking custody of the assets instead of having them transferred directly you have exercised a privilege that can be done only once per calendar year, if I recall correctly.

I concur except for this statement. The rollover provisions are limited to once every twelve months. They are not on a calendar year basis.

A further comment to the original poster.

You mentioned withholding on this transaction. If you want to do a complete rollover, you will need to make up the amount withheld from other funds. If you only roll over the NET proceeds (after the withholding), you will have taken a distribution from your Roth in the amount of the withholding. Don't forget to account for that withdrawl in your future distributions.

--Peter

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Author: pmarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 56098 of 121061
Subject: Re: Roth rollover Date: 12/18/2001 1:52 AM
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My question is, if I wait to 2002 to deposit the funds into the new Roth IRA, will I take care of this all on this year's return or will it need to be addressed in both years?

You report the whole thing on your 2001 return. The only 1040 reference to the "repayment" part of a rollover is the word "rollover" written on line 15 to show why the amount in 15a isn't included in 15b.

Your new custodian will report the rollover contribution on your 2002 record of contributions, but that doesn't affect your return.

Phil Marti
VITA Volunteer

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Author: WalStMonky Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 56104 of 121061
Subject: Re: Roth rollover Date: 12/18/2001 9:42 AM
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"The long and short of this is that you are in fact doing nothing more with the money than transferring it from one custodian to another custodian. That's why it is not considered to be a taxable event."

The first custodian is going to send me a 1099-R, no? So the IRS will expect me to explain what I did with the funds. My question is will this explanation take place over two tax returns, or just the one for 2001? When I mentioned tax liability, I was thinking that if it was spread over two returns then perhaps I might need to pay the tax this year, and then be refunded next year. This assuming that there was any tax due, as would be if I made a withdrawl from a regular IRA or one that exceeded my contributions to a Roth.

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Author: WalStMonky Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 56105 of 121061
Subject: Re: Roth rollover Date: 12/18/2001 9:46 AM
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"You mentioned withholding on this transaction. If you want to do a complete rollover, you will need to make up the amount withheld from other funds. If you only roll over the NET proceeds (after the withholding), you will have taken a distribution from your Roth in the amount of the withholding. Don't forget to account for that withdrawl in your future distributions."

I understand this, and have no intention of taking a distribution. I could have easily sent a check to the IRS to make up for my underwithholding, but alas, they wouldn't count it as paid in a timely manner. Strange that if I use them one method to send them a sum of money there's no penalty, but another would cost me a couple of hundred in extra taxes.

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