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Columns: Tax Talk
George Saenz, CPA Expert: George Saenz, CPA
Tax Talk
The new IRA custodian will demand proof of correct timing
Tax Talk

On the honor system with IRA rollover

Dear Tax Talk,
When I take an IRA distribution by a lump sum check made out to me after my CD matures, I understand that the financial institution must report this as a distribution on an IRS Form 1099-R and I get a copy.

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Then when I open a new CD at another institution within the 60 days allowed, I understand that the new receiving financial institution reports to the IRS on an IRS Form 5498 to show that there was an IRA contribution made -- and I get a copy of that as well.

I am somewhat confused as to how the IRS knows that the contribution to the new institution happened within the 60 day allowable period (to be tax-free) if the Form 5498 does not show the date of the IRA funds deposit. Does the IRS just rely on the taxpayer's word that the rollover occurred within the allowable 60-day time period? I would like to do a 60-day rollover and want to be sure it's done right.
-- Ron

Dear Ron,
Believe it or not our tax system is based on the principle of the taxpayer's honesty. However, sometimes the IRS checks with others on what you earned or spent.

Forms 1099-R and 5498 do not show the dates that the funds were distributed and redeposited, respectively. However, an IRA custodian that accepts a rollover contribution should ask you to prove that the redeposit occurs within 60 days of the withdrawal. If you cannot show this to the custodian, then it most likely will not accept the contribution as a rollover contribution.'s corrections policy-- Posted: June 26, 2007
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