This week’s Slott Report Mailbag looks into 60-day rollovers, IRA withdrawals, and NUAs. As always, we recommend you work with a competent, educated financial advisor to keep your retirement nest egg safe and secure.
A few weeks ago, I withdrew money from my IRA (they withheld 10% for taxes). Later I discovered I did not really need this money. Can I repay this money within 30 days without any penalty or tax consequences? I am 65 years old.
The time you have for repaying an IRA withdrawal begins on the date you receive the funds. You then have 60 days from that date to replace the funds in your IRA. This transaction is called a 60-day rollover. You can only do this once a year (365 days). For the purposes of this rule, your IRAs and Roth IRAs are combined. If you do a 60-day rollover between your Roth IRAs, then you cannot do a 60-day rollover between your IRA accounts until one year has passed. This rule only applies to IRA-to-IRA and Roth IRA-to-Roth IRA rollovers. Assuming you’re eligible to complete a rollover, if you want to rollover the full amount and avoid any income tax, you will have to rollover an amount equal to the check you received, plus the amount withheld for taxes.
We have a client who is considering an NUA distribution out of his 401(k), cost basis on the company stock is about $100k and value is about $650k. He left the company a few years ago, and has taken the quarterly stock dividends out of the 401(k) as income. The client is 41 years old. Is he still eligible for the NUA election, or does the fact that he’s been taking the quarterly stock dividends as income disqualify him?
Dividends on employer securities are not rollover eligible so they are paid out directly to the plan participant. The fact that he is receiving these dividends does not disqualify him from using the NUA strategy, as long as he meets all the other requirements.