An IRA owner has the option of moving IRA assets from one IRA to another in a tax-free exchange. How the move is recorded on your taxes will depend on the type of transfer conducted. A direct rollover or transfer occurs when money moves directly from one IRA custodian to another. This should never generate a 1099, and thus does not need to be recorded on your taxes. If money is transferred in an indirect rollover, you receive the check to deposit into the new IRA custodian. This transaction must be properly completed and recorded to avoid any taxes or penalties.
Obtain the check from your original IRA custodian. The check will be for 80 percent of the original value with 20 percent automatically withheld for federal withholding taxes. You will get this money back if you complete the transfer properly.
Deposit the check into the new IRA and add enough to make the value 100 percent of the original IRA. This means you need to come up with the extra 20 percent that was withheld for taxes by using savings or other resources. Complete the deposit within 60 days of receiving the check in order to meet IRS regulations.
Obtain Form 1099-R, sent by the original custodian for the distribution, and obtain Form 5498 from the new custodian. Both forms should be sent at the end of January in the year following the transfer. The distributed amount in the 1099-R should equal the amount contributed to the new custodian on the Form 5498.
File tax Form 1040 or 1040A for personal taxes. Record the entire distribution amount in line 15a of the 1040 or 11a of the 1040A. If 100 percent was transferred, line 15b or 11b should have an amount of zero recorded and "rollover" written next to it.
Direct transfers do not need to be recorded but personal records should be maintained to prevent possible future tax issues.
Failure to complete 100 percent of the transfer in 60 days results in a taxable event. Consult a tax adviser regarding any consequences that may occur.
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