retirement

Is bank at fault for IRA rollover snafu?

Judy O'ConnorDear Tax Talk,
On Feb. 12, 2014, I went to my bank to withdraw funds from my traditional IRA and explained to the teller that I wanted to redeposit/roll over this amount within a 60-day period. She filled out the withdrawal paperwork without checking my account. When I went back to roll over the amount on the 59th day, she indicated that it could not be treated as an IRA rollover because I had performed a rollover on Feb. 25, 2013.

She explained that the bank did not check the account and dates; therefore, I would have to treat it as a premature distribution and the deposit would have to be treated as a contribution for 2014. I argued the fact that the bank was at fault, since it is the administrator/caretaker of my IRA, but it declined to fix this situation! What are my options and is the bank at fault for this IRA rollover snafu? Thanks!
-- Tara

Dear Tara,
I am afraid I do not have any options for you. Unfortunately, you will not be able to roll over the distribution you received on Feb. 12, 2014, since you did not meet the one-year waiting period requirement.

In your case, the one-year period began Feb. 25, 2013. You took a withdrawal from a traditional IRA on Feb. 12, 2014, and you wanted to roll it over to another traditional IRA account. The IRS allows this only if you meet two requirements. The first requirement is that you contribute or roll over the funds within 60 days. You understood this part as you went to do this on the 59th day. But there is another requirement, and it is just as important as the 60-day rule: There must be a one-year waiting period between rollovers for the account you used, since you had previously made a rollover contribution to that account on Feb. 25, 2013.

IRA egg with roll of money © Don Mammoser/Shutterstock.com

Now as to who is at fault about the IRA rollover snafu, I am unable to answer this, but I pose these questions to you:

  • How did you learn about the 60-day requirement but not the one-year requirement?
  • Have you very carefully read all the fine print in the paperwork from the Feb. 25, 2013, transaction and the Feb. 12, 2014, transaction?

The teller should not have acted without your approval, and I am sure you will find your signature somewhere on that document and possibly a disclaimer with respect to the tax consequences.

This was a great question and I hope that other readers will learn something from this situation.

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