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Columns: Tax Talk
George Saenz, CPA   Expert: George Saenz, CPA
Tax Talk
Form hassles complicate IRA rollover
Tax Talk

Pay attention to retirement rollovers

Dear Tax Talk:
I have always tried to use the trustee-to-trustee method when rolling over IRA CD proceeds from one bank to another. However, the people at the branch of both the receiving bank and sending bank are no longer quite comfortable with this method.

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The IRS has made it very complicated to understand reporting requirements by making one Form 1099R and one Form 5498 to cover all kinds of retirement plans, including employer retirement plans, traditional IRA, Roth IRA and other types of IRAs. They are simply refusing to assist in trustee-to-trustee transfers or do not fill in the transfer forms correctly. I must therefore take the distribution from one bank and roll it over to another bank, even though I do not need 60 days to roll over.

I am aware of the 12-month waiting period for rollovers with respect to distributions from the same banks that were involved in the rollovers. What I am not clear about is whether 20 percent mandatory withholding of tax applies even when the distributing bank is told that the distribution was for a once-in-12-months rollover, which is permissible. I do not think banks are applying this withholding, but I want to make sure.
-- Hardas

Dear Hardas,
Your money may be working for you, but apparently your bankers are not.

I can't understand why the banks would be reluctant to do a direct rollover, as that is the simplest transaction to accomplish. An indirect rollover is more complex, as the receiving institution has to determine if the recontribution is an eligible rollover (i.e., within the 60 days).

Generally, if an eligible rollover distribution is paid directly to you, the payer must withhold 20 percent of it. This applies even if you plan to roll over the distribution to a traditional IRA. The amount withheld is part of the distribution. If you roll over less than the full amount of the distribution, you may have to include in your income the amount you do not roll over. However, you can make up the amount withheld with funds from other sources.

You can avoid withholding by choosing the direct rollover option, which your bankers aren't capable of doing.

For further information on the mandatory withholding see Form W-4P instructions.'s corrections policy-- Posted: Aug. 31, 2007
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