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Outstanding Rollovers - What You Need To Know Thumbnail

Outstanding Rollovers - What You Need To Know

The rules for rolling over IRA distributions can be complicated. These rules can become especially challenging at the end of the calendar year. If you are taking a distribution from your IRA at end of 2023 and considering a rollover that may not be completed until 2024, here are four facts you will want to know.

If you are taking a distribution from your IRA at end of 2023 and considering a rollover that may not be completed until 2024, here are four facts you will want to know.

1. Surprisingly, sometimes IRA owners have doubts as to whether a distribution taken in one calendar year can even be rolled over in the next. There is no problem with this! Nothing prevents you from taking an IRA distribution in December of 2023 and rolling it over in January of 2024 - as long as you be sure to follow all the rollover rules that apply. You will want to be especially careful of the 60-day rule for rollovers during this busy time of year. 

2. You may wonder how to handle a distribution from your IRA in 2023 that you roll over in 2024 on your tax return. Do you report this transaction on your 2023 tax return or wait for 2024? Here is how it works. The IRA custodian will report the distribution from your IRA on a 2023 Form 1099-R. The rollover will be reported by the IRA custodian on a 2024 Form 5498. You will report the distribution and the rollover on your 2023 federal income tax return. 

3. Be careful not to fall for a common misunderstanding of the one-rollover-per-year rule. The rule says that you may only roll over one distribution from all of your IRAs in a one-year period. The one rollover per year does not apply on a calendar year basis. It begins with the date you receive the distribution you later roll over. A new calendar year does not mean you have a clean slate. If you take an IRA distribution on December 15, 2023, and roll it over in January of 2024, you may not roll over another IRA distribution until December 16, 2024. 

4. If you are taking required minimum distributions (RMDs) there is an important rule to remember. If you take a distribution in 2023 and complete a rollover of those funds in 2024, you must include the amount rolled over in your December 31, 2023 fair market value when calculating your 2024 RMD. This rule prevents IRA owners from avoiding RMDs by having an IRA balance of zero on December 31. You cannot escape your RMD by emptying out your IRA in December and then rolling over the funds in January. 

Keep in mind that if you are establishing a new IRA with your rollover in 2024, your IRA custodian will not be reporting any 2024 RMD information to you. If you are rolling over to an existing IRA, the RMD amount the IRA custodian reports to you will be less than your actual RMD. This is because the IRA custodian reports RMD information to IRA owners based on the December 31 prior-year balance with no adjustments. You must make the adjustment yourself and add in the amount rolled over to the December 31 balance to calculate your correct 2024 RMD amount.

By Sarah Brenner, JD
Director of Retirement Education
Ed Slott and Company, LLC

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Christian Cordoba, founder of California Retirement Advisors, has been a member of Ed Slott's Master Elite IRA Advisor Group since 2007.

Copyright © 2024, Ed Slott and Company, LLC Reprinted from The Slott Report, 01/22/24, with permission. https://www.irahelp.com/slottreport/outstanding-rollovers-%E2%80%93-what-you-need-know, Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article. 
Investment advisory services offered through Mutual Advisors, LLC DBA California Retirement Advisors, a SEC registered investment advisor. Securities offered through Mutual Securities, Inc., member FINRA/SIPC. Mutual Securities, Inc. and Mutual Advisors, LLC are affiliated companies. CA Insurance license #0B09076. This content is developed from sources believed to be providing accurate information and provided by California Retirement Advisors. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. California Retirement Advisors, nor any of its members, are tax accountants or legal attorneys and do not provide tax or legal advice. For tax or legal advice, you should consult your tax or legal professional.