You can transfer, tax free, assets (money or property) from other retirement programs (including traditional IRAs) to a traditional IRA. You can make the following kinds of transfers.
- Transfers from one trustee to another.
- Transfers incident to a divorce.
This chapter discusses all three kinds of transfers.
Beginning in 2008, under certain conditions, you can move assets from a qualified retirement plan to a Roth IRA. For more information, see Can You Move Amounts Into a Roth IRA?
in chapter 2.
A transfer of funds in your traditional IRA from one trustee directly to another, either at your request or at the trustee's request, is not a rollover. Because there is no distribution to you, the transfer is tax free. Because it is not a rollover, it is not affected by the 1-year waiting period required between rollovers. This waiting period is discussed later under Rollover From One IRA Into Another
For information about direct transfers from retirement programs other than traditional IRAs, see Direct rollover option
Generally, a rollover is a tax-free distribution to you of cash or other assets from one retirement plan that you contribute to another retirement plan. The contribution to the second retirement plan is called a "rollover contribution."
An amount rolled over tax free from one retirement plan to another is generally includible in income when it is distributed from the second plan.
You can roll over amounts from the following plans into a traditional IRA:
- A traditional IRA,
- An employer's qualified retirement plan for its employees,
- A deferred compensation plan of a state or local government (section 457 plan), or
- A tax-sheltered annuity plan (section 403 plan).
A written explanation of rollover treatment must be given to you by the plan (other than an IRA) making the distribution. taxmap/pubs/p590-009.htm#en_us_publink10006191
You may be able to roll over, tax free, a distribution from your traditional IRA into a qualified plan. These plans include the Federal Thrift Savings Fund (for federal employees), deferred compensation plans of state or local governments (section 457 plans), and tax-sheltered annuity plans (section 403(b) plans). The part of the distribution that you can roll over is the part that would otherwise be taxable (includible in your income). Qualified plans may, but are not required to, accept such rollovers. taxmap/pubs/p590-009.htm#en_us_publink10006192
Ordinarily, when you have basis in your IRAs, any distribution is considered to include both nontaxable and taxable amounts. Without a special rule, the nontaxable portion of such a distribution could not be rolled over. However, a special rule treats a distribution you roll over into an eligible retirement plan as including only otherwise taxable amounts if the amount you either leave in your IRAs or do not roll over is at least equal to your basis. The effect of this special rule is to make the amount in your traditional IRAs that you can roll over to an eligible retirement plan as large as possible. taxmap/pubs/p590-009.htm#en_us_publink10006193
The following are considered eligible retirement plans.
- Individual retirement arrangements (IRAs).
- Qualified trusts.
- Qualified employee annuity plans under section 403(a).
- Deferred compensation plans of state and local governments (section 457 plans).
- Tax-sheltered annuities (section 403(b) annuities).
You generally must make the rollover contribution by the 60th day after the day you receive the distribution from your traditional IRA or your employer's plan. However, see Extension of rollover period
The IRS may waive the 60-day requirement where the failure to do so would be against equity or good conscience, such as in the event of a casualty, disaster, or other event beyond your reasonable control.taxmap/pubs/p590-009.htm#en_us_publink10006195
In the absence of a waiver, amounts not rolled over within the 60-day period do not qualify for tax-free rollover treatment. You must treat them as a taxable distribution from either your IRA or your employer's plan. These amounts are taxable in the year distributed, even if the 60-day period expires in the next year. You may also have to pay a 10% additional tax on early distributions as discussed later under Early Distributions
Unless there is a waiver or an extension of the 60-day rollover period, any contribution you make to your IRA more than 60 days after the distribution is a regular contribution, not a rollover contribution. taxmap/pubs/p590-009.htm#en_us_publink10006196
You received a distribution in late December 2008 from a traditional IRA that you do not roll over into another traditional IRA within the 60-day limit. You do not qualify for a waiver. This distribution is taxable in 2008 even though the 60-day limit was not up until 2009.taxmap/pubs/p590-009.htm#en_us_publink10006197
The 60-day rollover requirement is waived automatically only if all of the following apply.
- The financial institution receives the funds on your behalf before the end of the 60-day rollover period.
- You followed all the procedures set by the financial institution for depositing the funds into an eligible retirement plan within the 60-day period (including giving instructions to deposit the funds into an eligible retirement plan).
- The funds are not deposited into an eligible retirement plan within the 60-day rollover period solely because of an error on the part of the financial institution.
- The funds are deposited into an eligible retirement plan within 1 year from the beginning of the 60-day rollover period.
- It would have been a valid rollover if the financial institution had deposited the funds as instructed.
If you do not qualify for an automatic waiver, you can apply to the IRS for a waiver of the 60-day rollover requirement. You apply by following the procedures for applying for a letter ruling. Those procedures are stated in a revenue procedure generally published in the first Internal Revenue Bulletin of the year. You must also pay a user fee with the application. For how to get that revenue procedure, see chapter 6
In determining whether to grant a waiver, the IRS will consider all relevant facts and circumstances, including:
- Whether errors were made by the financial institution (other than those described under Automatic waiver, earlier),
- Whether you were unable to complete the rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country or postal error,
- Whether you used the amount distributed (for example, in the case of payment by check, whether you cashed the check), and
- How much time has passed since the date of distribution.
The rules regarding the amount that can be rolled over within the 60-day time period also apply to the amount that can be deposited due to a waiver. For example, if you received $6,000 from your IRA, the most that you can deposit into an eligible retirement plan due to a waiver is $6,000.taxmap/pubs/p590-009.htm#en_us_publink10006200
If an amount distributed to you from a traditional IRA or a qualified employer retirement plan is a frozen deposit at any time during the 60-day period allowed for a rollover, two special rules extend the rollover period.
- The period during which the amount is a frozen deposit is not counted in the 60-day period.
- The 60-day period cannot end earlier than 10 days after the deposit is no longer frozen.
This is any deposit that cannot be withdrawn from a financial institution because of either of the following reasons.
- The financial institution is bankrupt or insolvent.
- The state where the institution is located restricts withdrawals because one or more financial institutions in the state are (or are about to be) bankrupt or insolvent.
You can withdraw, tax free, all or part of the assets from one traditional IRA if you reinvest them within 60 days in the same or another traditional IRA. Because this is a rollover, you cannot deduct the amount that you reinvest in an IRA.
You may be able to treat a contribution made to one type of IRA as having been made to a different type of IRA. This is called recharacterizing the contribution. See Recharacterizations
in this chapter for more information.
Generally, if you make a tax-free rollover of any part of a distribution from a traditional IRA, you cannot, within a 1-year period, make a tax-free rollover of any later distribution from that same IRA. You also cannot make a tax-free rollover of any amount distributed, within the same 1-year period, from the IRA into which you made the tax-free rollover.
The 1-year period begins on the date you receive the IRA distribution, not on the date you roll it over into an IRA.taxmap/pubs/p590-009.htm#en_us_publink10006205
You have two traditional IRAs, IRA-1 and IRA-2. You make a tax-free rollover of a distribution from IRA-1 into a new traditional IRA (IRA-3). You cannot, within 1 year of the distribution from IRA-1, make a tax-free rollover of any distribution from either IRA-1 or IRA-3 into another traditional IRA.
However, the rollover from IRA-1 into IRA-3 does not prevent you from making a tax-free rollover from IRA-2 into any other traditional IRA. This is because you have not, within the last year, rolled over, tax-free, any distribution from IRA-2 or made a tax-free rollover into IRA-2.taxmap/pubs/p590-009.htm#en_us_publink10006206
There is an exception to the rule that amounts rolled over tax free into an IRA cannot be rolled over tax free again within the 1-year period beginning on the date of the original distribution. The exception applies to a distribution which meets all three of the following requirements.
- It is made from a failed financial institution by the Federal Deposit Insurance Corporation (FDIC) as receiver for the institution.
- It was not initiated by either the custodial institution or the depositor.
- It was made because:
- The custodial institution is insolvent, and
- The receiver is unable to find a buyer for the institution.
If property is distributed to you from an IRA and you complete the rollover by contributing property to an IRA, your rollover is tax free only if the property you contribute is the same property that was distributed to you. taxmap/pubs/p590-009.htm#en_us_publink10006208
If you withdraw assets from a traditional IRA, you can roll over part of the withdrawal tax free and keep the rest of it. The amount you keep will generally be taxable (except for the part that is a return of nondeductible contributions). The amount you keep may be subject to the 10% additional tax on early distributions discussed later under What Acts Result in Penalties or Additional Taxes
Amounts that must be distributed during a particular year under the required distribution rules (discussed later) are not eligible for rollover treatment. taxmap/pubs/p590-009.htm#en_us_publink10006210
If you inherit a traditional IRA from your spouse, you generally can roll it over, or you can choose to make the inherited IRA your own as discussed earlier under What if You Inherit an IRA
If you inherit a traditional IRA from someone other than your spouse, you cannot roll it over or allow it to receive a rollover contribution. You must withdraw the IRA assets within a certain period. For more information, see When Must You Withdraw Assets,
Report any rollover from one traditional IRA to the same or another traditional IRA on Form 1040, lines 15a and 15b; Form 1040A, lines 11a and 11b; or Form 1040NR, lines 16a and 16b.
Enter the total amount of the distribution on Form 1040, line 15a; Form 1040A, line 11a; or Form 1040NR, line 16a. If the total amount on Form 1040, line 15a; Form 1040A, line 11a; or Form 1040NR, line 16a, was rolled over, enter zero on Form 1040, line 15b; Form 1040A, line 11b; or Form 1040NR, line 16b. If the total distribution was not rolled over, enter the taxable portion of the part that was not rolled over on Form 1040, line 15b; Form 1040A, line 11b; or Form 1040NR, line 16b. Put "Rollover" next to line 15b, Form 1040; line 11b, Form 1040A; or line 16b, Form 1040NR. See the forms' instructions.
If you rolled over the distribution into a qualified plan (other than an IRA) or you make the rollover in 2009, attach a statement explaining what you did.taxmap/pubs/p590-009.htm#en_us_publink10006213
You can roll over into a traditional IRA all or part of an eligible rollover distribution you receive from your (or your deceased spouse's):
- Employer's qualified pension, profit-sharing or stock bonus plan,
- Annuity plan,
- Tax-sheltered annuity plan (section 403(b) plan), or
- Governmental deferred compensation plan (section 457 plan).
A qualified plan is one that meets the requirements of the Internal Revenue Code. taxmap/pubs/p590-009.htm#en_us_publink10006214
Generally, an eligible rollover distribution is any distribution of all or part of the balance to your credit in a qualified retirement plan except the following.
- A required minimum distribution (explained later under When Must You Withdraw Assets? (Required Minimum Distributions)).
- A hardship distribution.
- Any of a series of substantially equal periodic distributions paid at least once a year over:
- Your lifetime or life expectancy,
- The lifetimes or life expectancies of you and your beneficiary, or
- A period of 10 years or more.
- Corrective distributions of excess contributions or excess deferrals, and any income allocable to the excess, or of excess annual additions and any allocable gains.
- A loan treated as a distribution because it does not satisfy certain requirements either when made or later (such as upon default), unless the participant's accrued benefits are reduced (offset) to repay the loan.
- Dividends on employer securities.
- The cost of life insurance coverage.
Your rollover into a traditional IRA may include both amounts that would be taxable and amounts that would not be taxable if they were distributed to you, but not rolled over. To the extent the distribution is rolled over into a traditional IRA, it is not includible in your income.
Any nontaxable amounts that you roll over into your traditional IRA become part of your basis (cost) in your IRAs. To recover your basis when you take distributions from your IRA, you must complete Form 8606 for the year of the distribution. See Form 8606
under Distributions Fully or Partly Taxable later.
A direct transfer from a deceased employee's qualified pension, profit-sharing or stock bonus plan, annuity plan, tax-sheltered annuity (section 403(b)) plan, or governmental deferred compensation (section 457) plan to an IRA set up to receive the distribution on your behalf can be treated as an eligible rollover distribution if you are the designated beneficiary of the plan and not the employee's spouse. The IRA is treated as an inherited IRA. For more information about inherited IRAs, see What if You Inherit an IRA
Before making an eligible rollover distribution, the administrator of a qualified employer plan must provide you with a written explanation. It must tell you about all of the following.
- Your right to have the distribution paid tax free directly to a traditional IRA or another eligible retirement plan.
- The requirement to withhold tax from the distribution if it is not paid directly to a traditional IRA or another eligible retirement plan.
- The tax treatment of any part of the distribution that you roll over to a traditional IRA or another eligible retirement plan within 60 days after you receive the distribution.
- Other qualified employer plan rules, if they apply, including those for lump-sum distributions, alternate payees, and cash or deferred arrangements.
- How the plan receiving the distribution differs from the plan making the distribution in its restrictions and tax consequences.
The plan administrator must provide you with this written explanation no earlier than 90 days and no later than 30 days before the distribution is made.
However, you can choose to have a distribution made less than 30 days after the explanation is provided as long as both of the following requirements are met.
- You are given at least 30 days after the notice is provided to consider whether you want to elect a direct rollover.
- You are given information that clearly states that you have this 30-day period to make the decision.
Contact the plan administrator if you have any questions regarding this information.
Generally, if an eligible rollover distribution is paid directly to you, the payer must withhold 20% of it. This applies even if you plan to roll over the distribution to a traditional IRA. You can avoid withholding by choosing the direct rollover option
, discussed later.
The payer does not have to withhold from an eligible rollover distribution paid to you if either of the following conditions apply.
- The distribution and all previous eligible rollover distributions you received during your tax year from the same plan (or, at the payer's option, from all your employer's plans) total less than $200.
- The distribution consists solely of employer securities, plus cash of $200 or less in lieu of fractional shares.
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.
The 20% withholding requirement does not apply to distributions that are not eligible rollover distributions. However, other withholding rules apply to these distributions. The rules that apply depend on whether the distribution is a periodic distribution or a nonperiodic distribution. For either of these types of distributions, you can still choose not to have tax withheld. For more information, see Publication 575.taxmap/pubs/p590-009.htm#en_us_publink10006222
Your employer's qualified plan must give you the option to have any part of an eligible rollover distribution paid directly to a traditional IRA. The plan is not required to give you this option if your eligible rollover distributions are expected to total less than $200 for the year. taxmap/pubs/p590-009.htm#en_us_publink10006223
If you choose the direct rollover option, no tax is withheld from any part of the designated distribution that is directly paid to the trustee of the traditional IRA.
If any part is paid to you, the payer must withhold 20% of that part's taxable amount. taxmap/pubs/p590-009.htm#en_us_publink10006224
Table 1-4 may help you decide which distribution option to choose. Carefully compare the effects of each option.
Table 1-4. Comparison of Payment to You Versus Direct Rollover
|Affected item||Result of a payment to you||Result of a|
|withholding||The payer must withhold 20% of the taxable part.||There is no withholding.|
|additional tax||If you are under age 591/2, a 10% additional tax may apply to the taxable part (including an amount equal to the tax withheld) that is not rolled over. ||There is no 10% additional tax. See Early Distributions. |
|when to report|
|Any taxable part (including the taxable part of any amount withheld) not rolled over is income to you in the year paid.||Any taxable part is not income to you until later distributed to you from the IRA.|
If you decide to roll over any part of a distribution, the direct rollover option will generally be to your advantage. This is because you will not have 20% withholding or be subject to the 10% additional tax under that option.
If you have a lump-sum distribution and do not plan to roll over any part of it, the distribution may be eligible for special tax treatment that could lower your tax for the distribution year. In that case, you may want to see Publication 575 and Form 4972, Tax on Lump-Sum Distributions, and its instructions to determine whether your distribution qualifies for special tax treatment and, if so, to figure your tax under the special methods.
You can then compare any advantages from using Form 4972 to figure your tax on the lump-sum distribution with any advantages from rolling over all or part of the distribution. However, if you roll over any part of the lump-sum distribution, you cannot use the Form 4972 special tax treatment for any part of the distribution.
You can roll over a distribution of voluntary deductible employee contributions (DECs) you made to your employer's plan. Prior to January 1, 1987, employees could make and deduct these contributions to certain qualified employers' plans and government plans. These are not the same as an employee's elective contributions to a 401(k) plan, which are not deductible by the employee.
If you receive a distribution from your employer's qualified plan of any part of the balance of your DECs and the earnings from them, you can roll over any part of the distribution. taxmap/pubs/p590-009.htm#en_us_publink10006227
The once-a-year limit on IRA-to-IRA rollovers does not apply to eligible rollover distributions from an employer plan. You can roll over more than one distribution from the same employer plan within a year. taxmap/pubs/p590-009.htm#en_us_publink10006228
If you receive an eligible rollover distribution from your employer's plan, you can roll over part or all of it into one or more conduit IRAs. You can later roll over those assets into a new employer's plan. You can use a traditional IRA as a conduit IRA. You can roll over part or all of the conduit IRA to a qualified plan, even if you make regular contributions to it or add funds from sources other than your employer's plan. However, if you make regular contributions to the conduit IRA or add funds from other sources, the qualified plan into which you move funds will not be eligible for any optional tax treatment for which it might have otherwise qualified.taxmap/pubs/p590-009.htm#en_us_publink10006229
If you receive both property and cash in an eligible rollover distribution, you can roll over part or all of the property, part or all of the cash, or any combination of the two that you choose. taxmap/pubs/p590-009.htm#en_us_publink10006230
If you receive property in an eligible rollover distribution from a qualified retirement plan you cannot keep the property and contribute cash to a traditional IRA in place of the property. You must either roll over the property or sell it and roll over the proceeds, as explained next. taxmap/pubs/p590-009.htm#en_us_publink10006231
Instead of rolling over a distribution of property other than cash, you can sell all or part of the property and roll over the amount you receive from the sale (the proceeds) into a traditional IRA. You cannot keep the property and substitute your own funds for property you received. taxmap/pubs/p590-009.htm#en_us_publink10006232
You receive a total distribution from your employer's plan consisting of $10,000 cash and $15,000 worth of property. You decide to keep the property. You can roll over to a traditional IRA the $10,000 cash received, but you cannot roll over an additional $15,000 representing the value of the property you choose not to sell. taxmap/pubs/p590-009.htm#en_us_publink10006233
If you sell the distributed property and roll over all the proceeds into a traditional IRA, no gain or loss is recognized. The sale proceeds (including any increase in value) are treated as part of the distribution and are not included in your gross income. taxmap/pubs/p590-009.htm#en_us_publink10006234
On September 4, Mike received a lump-sum distribution from his employer's retirement plan of $50,000 in cash and $50,000 in stock. The stock was not stock of his employer. On September 24, he sold the stock for $60,000. On October 4, he rolled over $110,000 in cash ($50,000 from the original distribution and $60,000 from the sale of stock). Mike does not include the $10,000 gain from the sale of stock as part of his income because he rolled over the entire amount into a traditional IRA.
Special rules may apply to distributions of employer securities. For more information, see Publication 575.
If you received both cash and property, or just property, but did not roll over the entire distribution, see Rollovers in Publication 575.taxmap/pubs/p590-009.htm#en_us_publink10006237
You cannot roll over a life insurance contract from a qualified plan into a traditional IRA. taxmap/pubs/p590-009.htm#en_us_publink10006238
If you receive an eligible rollover distribution
(defined earlier) from your deceased spouse's eligible retirement plan (defined earlier), you can roll over part or all of it into a traditional IRA. You can also roll over all or any part of a distribution of deductible employee contributions (DECs).
If you are the spouse or former spouse of an employee and you receive a distribution from a qualified employer plan as a result of divorce or similar proceedings, you may be able to roll over all or part of it into a traditional IRA. To qualify, the distribution must be:
- One that would have been an eligible rollover distribution (defined earlier) if it had been made to the employee, and
- Made under a qualified domestic relations order.
A domestic relations order is a judgment, decree, or order (including approval of a property settlement agreement) that is issued under the domestic relations law of a state. A "qualified domestic relations order" gives to an alternate payee (a spouse, former spouse, child, or dependent of a participant in a retirement plan) the right to receive all or part of the benefits that would be payable to a participant under the plan. The order requires certain specific information, and it cannot alter the amount or form of the benefits of the plan. taxmap/pubs/p590-009.htm#en_us_publink10006241
Any part of an eligible rollover distribution that you keep is taxable in the year you receive it. If you do not roll over any of it, special rules for lump-sum distributions may apply. See Publication 575. The 10% additional tax on early distributions, discussed later under What Acts Result in Penalties or Additional Taxes
, does not apply.
If you are self-employed, you are generally treated as an employee for rollover purposes. Consequently, if you receive an eligible rollover distribution from a Keogh plan (a qualified plan with at least one self-employed participant), you can roll over all or part of the distribution (including a lump-sum distribution) into a traditional IRA. For information on lump-sum distributions, see Publication 575. taxmap/pubs/p590-009.htm#en_us_publink10006243
For more information about Keogh plans, see Publication 560.taxmap/pubs/p590-009.htm#en_us_publink10006244
If you receive an eligible rollover distribution from a tax-sheltered annuity plan (section 403(b) plan), you can roll it over into a traditional IRA. taxmap/pubs/p590-009.htm#en_us_publink10006245
If you receive property other than money, you can sell the property and roll over the proceeds as discussed earlier. taxmap/pubs/p590-009.htm#en_us_publink10006246
If you redeem retirement bonds that were distributed to you under a qualified bond purchase plan, you can roll over tax free into a traditional IRA the part of the amount you receive that is more than your basis in the retirement bonds.taxmap/pubs/p590-009.htm#en_us_publink10006247
Enter the total distribution (before income tax or other deductions were withheld) on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17a. This amount should be shown in box 1 of Form 1099-R. From this amount, subtract any contributions (usually shown in box 5 of Form 1099-R) that were taxable to you when made. From that result, subtract the amount that was rolled over either directly or within 60 days of receiving the distribution. Enter the remaining amount, even if zero, on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Also, enter "Rollover" next to line 16b on Form 1040; line 12b of Form 1040A; or line 17b of Form 1040NR.taxmap/pubs/p590-009.htm#en_us_publink1000124843
If you are a qualified taxpayer and you received qualified settlement income, you can contribute all or part of the amount received to an eligible retirement plan which includes a traditional IRA. The amount contributed cannot exceed $100,000 (reduced by the amount of qualified settlement income contributed to an eligible retirement plan in prior tax years) or the amount of qualified settlement income received during the tax year. Contributions for the year can be made until the due date for filing your return, not including extensions.
Qualified settlement income that you contribute to a traditional IRA will be treated as having been rolled over in a direct trustee-to-trustee transfer within 60 days of the distribution. The amount contributed is not included in your income at the time of the contributions and is not considered to be investment in the contract. Also, the 1-year waiting period between rollovers does not apply.taxmap/pubs/p590-009.htm#en_us_publink1000124844
You are a qualified taxpayer if you are:
- A plaintiff in the civil action In re Exxon Valdez, No. 89-095-CV (HRH) (Consolidated) (D.Alaska), or
- The beneficiary of the estate of a plaintiff who acquired the right to receive qualified settlement income and who is the spouse or immediate relative of that plaintiff.
Qualified settlement income is any interest and punitive damage awards which are:
- Otherwise includible in income, and
- Received in connection with the civil action In re Exxon Valdez, No. 89-095-CV (HRH) (Consolidated) (D.Alaska) (whether pre- or post-judgment and whether related to a settlement or judgment).
Qualified settlement income can be received as periodic payments or as a lump sum. See Publication 525, Taxable and Nontaxable Income, for information on how to report qualified settlement income.
If an interest in a traditional IRA is transferred from your spouse or former spouse to you by a divorce or separate maintenance decree or a written document related to such a decree, the interest in the IRA, starting from the date of the transfer, is treated as your IRA. The transfer is tax free. For information about transfers of interests in employer plans, see Distributions under divorce or similar proceedings (alternate payees)
under Rollover From Employer's Plan Into an IRA,
There are two commonly-used methods of transferring IRA assets to a spouse or former spouse. The methods are:
- Changing the name on the IRA, and
- Making a direct transfer of IRA assets.
If all the assets are to be transferred, you can make the transfer by changing the name on the IRA from your name to the name of your spouse or former spouse. taxmap/pubs/p590-009.htm#en_us_publink10006251
Under this method, you direct the trustee of the traditional IRA to transfer the affected assets directly to the trustee of a new or existing traditional IRA set up in the name of your spouse or former spouse.
If your spouse or former spouse is allowed to keep his or her portion of the IRA assets in your existing IRA, you can direct the trustee to transfer the assets you are permitted to keep directly to a new or existing traditional IRA set up in your name. The name on the IRA containing your spouse's or former spouse's portion of the assets would then be changed to show his or her ownership.
If the transfer results in a change in the basis of the traditional IRA of either spouse, both spouses must file Form 8606 and follow the directions in the instructions for that form.
You can convert amounts from a traditional IRA into a Roth IRA if, for the tax year you make the withdrawal from the traditional IRA, both of the following requirements are met.
- Your modified AGI for Roth IRA purposes (see Modified AGI in chapter 2) is not more than $100,000.
- You are not a married individual filing a separate return.
If you did not live with your spouse at any time during the year and you file a separate return, your filing status, for this purpose, is single.
You can withdraw all or part of the assets from a traditional IRA and reinvest them (within 60 days) in a Roth IRA. The amount that you withdraw and timely contribute (convert) to the Roth IRA is called a conversion contribution. If properly (and timely) rolled over, the 10% additional tax on early distributions will not apply.
You must roll over into the Roth IRA the same property you received from the traditional IRA. You can roll over part of the withdrawal into a Roth IRA and keep the rest of it. The amount you keep will generally be taxable (except for the part that is a return of nondeductible contributions) and may be subject to the 10% additional tax on early distributions. See When Can You Withdraw or Use Assets
, later for more information on distributions from traditional IRAs and Early Distributions
, later, for more information on the tax on early distributions.
If you have started taking substantially equal periodic payments from a traditional IRA, you can convert the amounts in the traditional IRA to a Roth IRA and then continue the periodic payments. The 10% additional tax on early distributions will not apply even if the distributions are not qualified distributions (as long as they are part of a series of substantially equal periodic payments).taxmap/pubs/p590-009.htm#en_us_publink10006257
You cannot convert amounts that must be distributed from your traditional IRA for a particular year (including the calendar year in which you reach age 701/2) under the required distribution rules (discussed in this chapter). taxmap/pubs/p590-009.htm#en_us_publink10006258
You must include in your gross income distributions from a traditional IRA that you would have had to include in income if you had not converted them into a Roth IRA. You do not include in gross income any part of a distribution from a traditional IRA that is a return of your basis, as discussed under Are Distributions Taxable
, later in this chapter.
If you must include any amount in your gross income, you may have to increase your withholding or make estimated tax payments. See Publication 505, Tax Withholding and Estimated Tax.
You may be able to treat a contribution made to one type of IRA as having been made to a different type of IRA. This is called recharacterizing the contribution.
To recharacterize a contribution, you generally must have the contribution transferred from the first IRA (the one to which it was made) to the second IRA in a trustee-to-trustee transfer. If the transfer is made by the due date (including extensions) for your tax return for the year during which the contribution was made, you can elect to treat the contribution as having been originally made to the second IRA instead of to the first IRA. If you recharacterize your contribution, you must do all three of the following.
- Include in the transfer any net income allocable to the contribution. If there was a loss, the net income you must transfer may be a negative amount.
- Report the recharacterization on your tax return for the year during which the contribution was made.
- Treat the contribution as having been made to the second IRA on the date that it was actually made to the first IRA.
You cannot deduct the contribution to the first IRA. Any net income you transfer with the recharacterized contribution is treated as earned in the second IRA. The contribution will not be treated as having been made to the second IRA to the extent any deduction was allowed for the contribution to the first IRA. taxmap/pubs/p590-009.htm#en_us_publink10006262
For recharacterization purposes, if you receive a distribution from a traditional IRA in one tax year and roll it over into a Roth IRA in the next year, but still within 60 days of the distribution from the traditional IRA, treat it as a contribution to the Roth IRA in the year of the distribution from the traditional IRA. taxmap/pubs/p590-009.htm#en_us_publink10006263
If an amount has been moved from one IRA to another in a tax-free transfer, such as a rollover, you generally cannot recharacterize the amount that was transferred. However, see Traditional IRA mistakenly moved to SIMPLE IRA
Roth IRA conversion contributions from a SEP IRA or SIMPLE IRA can be recharacterized to a SEP IRA or SIMPLE IRA (including the original SEP IRA or SIMPLE IRA).taxmap/pubs/p590-009.htm#en_us_publink10006265
If you mistakenly roll over or transfer an amount from a traditional IRA to a SIMPLE IRA, you can later recharacterize the amount as a contribution to another traditional IRA. taxmap/pubs/p590-009.htm#en_us_publink10006266
You can recharacterize only actual contributions. If you are applying excess contributions for prior years as current contributions, you can recharacterize them only if the recharacterization would still be timely with respect to the tax year for which the applied contributions were actually made. taxmap/pubs/p590-009.htm#en_us_publink10006267
You contributed more than you were entitled to in 2008. You cannot recharacterize the excess contributions you made in 2008 after April 15, 2009, because contributions after that date are no longer timely for 2008.taxmap/pubs/p590-009.htm#en_us_publink10006268
You cannot recharacterize employer contributions (including elective deferrals) under a SEP or SIMPLE plan as contributions to another IRA. SEPs are discussed in Publication 560. SIMPLE plans are discussed in chapter 3
The recharacterization of a contribution is not treated as a rollover for purposes of the 1-year waiting period described earlier in this chapter under Rollover From One IRA Into Another
. This is true even if the contribution would have been treated as a rollover contribution by the second IRA if it had been made directly to the second IRA rather than as a result of a recharacterization of a contribution to the first IRA.
You cannot convert and reconvert an amount during the same tax year or, if later, during the 30-day period following a recharacterization. If you reconvert during either of these periods, it will be a failed conversion. taxmap/pubs/p590-009.htm#en_us_publink10006271
If you convert an amount from a traditional IRA to a Roth IRA and then transfer that amount back to a traditional IRA in a recharacterization in the same year, you may not reconvert that amount from the traditional IRA to a Roth IRA before:
- The beginning of the year following the year in which the amount was converted to a Roth IRA or, if later,
- The end of the 30-day period beginning on the day on which you transfer the amount from the Roth IRA back to a traditional IRA in a recharacterization.
To recharacterize a contribution, you must notify both the trustee of the first IRA (the one to which the contribution was actually made) and the trustee of the second IRA (the one to which the contribution is being moved) that you have elected to treat the contribution as having been made to the second IRA rather than the first. You must make the notifications by the date of the transfer. Only one notification is required if both IRAs are maintained by the same trustee. The notification(s) must include all of the following information.
- The type and amount of the contribution to the first IRA that is to be recharacterized.
- The date on which the contribution was made to the first IRA and the year for which it was made.
- A direction to the trustee of the first IRA to transfer in a trustee-to-trustee transfer the amount of the contribution and any net income (or loss) allocable to the contribution to the trustee of the second IRA.
- The name of the trustee of the first IRA and the name of the trustee of the second IRA.
- Any additional information needed to make the transfer.
In most cases, the net income you must transfer is determined by your IRA trustee or custodian. If you need to determine the applicable net income on IRA contributions made after 2008 that are recharacterized, use Worksheet 1-3. See Regulations section 1.408A-5 for more information.taxmap/pubs/p590-009.htm#w15160x07
Worksheet 1-3. Determining the Amount of Net Income Due To an IRA Contribution and Total Amount To Be Recharacterized
|1.||Enter the amount of your IRA contribution for 2009 to be recharacterized||1.|| |
|2.||Enter the fair market value of the IRA immediately prior to the recharacterization (include any distributions, transfers, or recharacterization made while the contribution was in the account) ||2.|| |
|3.||Enter the fair market value of the IRA immediately prior to the time the contribution being recharacterized was made, including the amount of such contribution and any other contributions, transfers, or recharacterizations made while the contribution was in the account ||3.|| |
|4.||Subtract line 3 from line 2||4.|| |
|5.||Divide line 4 by line 3. Enter the result as a decimal (rounded to at least three places)||5.|| |
|6. ||Multiply line 1 by line 5. This is the net income attributable to the contribution to be recharacterized||6.|| |
|7.||Add lines 1 and 6. This is the amount of the IRA contribution plus the net income attributable to it to be recharacterized||7.|| |
On April 1, 2009, when her Roth IRA is worth $80,000, Allison makes a $160,000 conversion contribution to the Roth IRA. Subsequently, Allison discovers that she was ineligible to make a Roth conversion contribution in 2009 and so she requests that the $160,000 be recharacterized to a traditional IRA. Pursuant to this request, on April 1, 2010, when the IRA is worth $225,000, the Roth IRA trustee transfers to a traditional IRA the $160,000 plus allocable net income. No other contributions have been made to the Roth IRA and no distributions have been made.
The adjusted opening balance is $240,000 ($80,000 + $160,000) and the adjusted closing balance is $225,000. Thus the net income allocable to the $160,000 is ($10,000) ($160,000 x (($225,000 – $240,000) ÷ $240,000)). Therefore in order to recharacterize the April 1, 2009, $160,000 conversion contribution on April 1, 2010, the Roth IRA trustee must transfer from Allison's Roth IRA to her traditional IRA $150,000 ($160,000 – $10,000). This is shown on the following worksheet.taxmap/pubs/p590-009.htm#w15160x26
Worksheet 1-3. Example—Illustrated
|1.||Enter the amount of your IRA contribution for 2009 to be recharacterized||1.||160,000|
|2.||Enter the fair market value of the IRA immediately prior to the recharacterization (include any distributions, transfers, or recharacterization made while the contribution was in the account) ||2.||225,000|
|3.||Enter the fair market value of the IRA immediately prior to the time the contribution being recharacterized was made, including the amount of such contribution and any other contributions, transfers, or recharacterizations made while the contribution was in the account ||3.||240,000|
|4.||Subtract line 3 from line 2||4.||(15,000)|
|5.||Divide line 4 by line 3. Enter the result as a decimal (rounded to at least three places)||5.||(.0625)|
|6. ||Multiply line 1 by line 5. This is the net income attributable to the contribution to be recharacterized||6.||(10,000)|
|7.||Add lines 1 and 6. This is the amount of the IRA contribution plus the net income attributable to it to be recharacterized||7.||150,000|
The election to recharacterize and the transfer must both take place on or before the due date (including extensions) for filing your tax return for the year for which the contribution was made to the first IRA. taxmap/pubs/p590-009.htm#en_us_publink10006275
Ordinarily you must choose to recharacterize a contribution by the due date of the return or the due date plus extensions. However, if you miss this deadline, you can still recharacterize a contribution if:
- Your return was timely filed for the year the choice should have been made, and
- You take appropriate corrective action within 6 months from the due date of your return excluding extensions. For returns due April 15, 2009, this period ends on October 15, 2009. When the date for doing any act for tax purposes falls on a Saturday, Sunday, or legal holiday, the due date is delayed until the next business day.
Appropriate corrective action consists of:
- Notifying the trustee(s) of your intent to recharacterize,
- Providing the trustee with all necessary information, and
- Having the trustee transfer the contribution.
Once this is done, you must amend your return to show the recharacterization. You have until the regular due date for amending a return to do this. Report the recharacterization on the amended return and write "Filed pursuant to section 301.9100-2" on the return. File the amended return at the same address you filed the original return.
The election to recharacterize can be made on behalf of a deceased IRA owner by the executor, administrator, or other person responsible for filing the decedent's final income tax return. taxmap/pubs/p590-009.htm#en_us_publink10006277
After the transfer has taken place, you cannot change your election to recharacterize. taxmap/pubs/p590-009.htm#en_us_publink10006278
Recharacterizations made with the same trustee can be made by redesignating the first IRA as the second IRA, rather than transferring the account balance. taxmap/pubs/p590-009.htm#en_us_publink10006279
If you elect to recharacterize a contribution to one IRA as a contribution to another IRA, you must report the recharacterization on your tax return as directed by Form 8606 and its instructions. You must treat the contribution as having been made to the second IRA. taxmap/pubs/p590-009.htm#en_us_publink10006280
On June 1, 2008, Christine properly and timely converted her traditional IRAs to a Roth IRA. At the time, she and her husband, Lyle, expected to have modified AGI of $100,000 or less for 2008. In December, Lyle received an unexpected bonus that increased his and Christine's modified AGI to more than $100,000. In January 2009, to make the necessary adjustment to remove the unallowable conversion, Christine set up a traditional IRA with the same trustee. Also in January 2009, she instructed the trustee of the Roth IRA to make a trustee-to-trustee transfer of the conversion contribution made to the Roth IRA (including net income allocable to it since the conversion) to the new traditional IRA. She also notified the trustee that she was electing to recharacterize the contribution to the Roth IRA and treat it as if it had been contributed to the new traditional IRA. Because of the recharacterization, Lyle and Christine have no taxable income from the conversion to report for 2008, and the resulting rollover to a traditional IRA is not treated as a rollover for purposes of the one-rollover-per-year rule.taxmap/pubs/p590-009.htm#en_us_publink10006281
If you have more than one IRA, figure the amount to be recharacterized only on the account from which you withdraw the contribution.