Before making any decisions on how, when and in what manner to handle distributions and/or rolling over amounts related to your IRAs, we would like to offer our services in clarifying what can be done according to tax law versus what seems to be allowable in IRS publications or via an IRS representative on the phone.
Below are some excerpts from an article using an example relating to IRA scenarios and illustrates the open room for interpretation by the layperson when it comes to reading tax instructions.
“Let’s say I have five separate IRAs, each with $50,000. In January I take $45,000 from IRA-1. In March I take $45,000 from IRA-2, and use the funds to replace the IRA-1 distribution within 60 days. In May I do the same from IRA-3, July from IRA-4, and September from IRA-5. I timely replace the September distribution in November. I have now had use of $45,000 for as long as 300 days (5 separate 60-day periods).”
This is not what is intended by the 60-day rollover rule, but it is what could be construed by the language in the IRS writings. The problem is an IRS publication and/or a proposed regulation is not an “official” writing. They cannot be relied upon by taxpayers if a conflict arises.
“The Tax Court said that the 60-day rule could be used only once for all of the taxpayer’s IRA and a penalty will be assessed for actions such as these. The Tax Court clarified…that reliance on an IRS publication will not avoid penalties.”
Bottom line: Plain language can be imprecise from a legal perspective. Let us review the Tax Law and give you the best option for your needs.