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George Saenz, the Bankrate.com Tax Talk columnistSnafu with IRA rollover distribution

Dear Tax Talk,
I took a $30,000 distribution from my IRA account, in June 2005, and replaced it within 60 days.

When January 2006 rolled around, I got an IRS form from the administrator of the IRA indicating I had taken a distribution of $30,000. There was no indication or form stating I had replaced the $30,000 and therefore owed no tax on it.

When I called, I was told that form would not come out until May. Due to this, I filed for an extension on filing my return for 2005.

I didn't want to have to pay tax on the $30,000 and I also didn't want to file a return that made me a likely target for an audit. The administrator says they couldn't issue a form stating I had replaced the $30,000 until after the deadline (April 17, 2006) for making contributions for the 2005 tax year.

Is this the way this is supposed to work? If so, it seems like a very good reason to never "borrow" money from your own account.
-- Dazed in Florida

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Dear Dazed,
You can't be perfect all the time. Your IRA custodian needs to file Form 5498 to report rollover contributions. Since Form 5498 combines various reporting requirements, including rollovers and contributions, it does not need to be provided to the taxpayer until later than most other information-reporting forms.

Since individuals have until April 15 to make contributions to their IRA, and you could roll over a 2005 contribution up to 60 days after year-end, it would be impossible for an IRA custodian to issue the form to all its clients before all 2005 reportable transactions are complete. Therefore, the deadline for filing this information with the IRS and providing it to participants is May 31 of the following year.

Although you filed an extension, it wasn't necessary, as the IRS does not match this piece of data with your return on the day your return is processed. Information matching usually takes place within a year of filing your return. If there is a discrepancy at that time, usually a computer-generated notice is issued indicating the differences and requesting an explanation. (If there are a lot of differences or other questionable items, the return could get sent down for an office examination.)

Since you did replace the funds, and the IRA custodian is responsible for reporting that fact, you could have filed in a timely way and been on the lookout for the correct reporting of the transaction. However there was no harm done in filing the extension.

To ask a question on Tax Talk, go to the "Ask the Experts" page, and select "taxes" as the topic.

Bankrate.com's corrections policy -- Posted: June 23, 2006
Read more Tax Adviser columnsAsk a question
 RESOURCES
IRA rollover rules
Reporting 401(k) and IRA rollovers
Retirement-plan distribution nightmares
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