Question

a trust to trust rollover is a preferred way to transfer one retirement account to another.all of these are potential problems when taxpayers take the distribution and handle the rollover themselves except

Answer 1

• A distribution that is part of a series of substantially equal periodic payments (to meet this element, the payments must be made at least once a year over either (1) the life or life expectancy of the employee or the joint lives (or joint life expectancies) of the employee and the employee's designated beneficiary, or (2) for a specified period of 10 years or more);
• A distribution that is a required minimum distribution (RMD) (only the RMD amount for the tax year is not eligible for rollover treatment under this rule—an amount exceeding the RMD would qualify);
• A distribution that is a hardship distribution;
• Loans treated as a distribution;
• A distribution of excess contributions and related earnings;
• Withdrawals electing out of automatic contribution arrangements;
• Distributions to pay for accident, health, or life insurance;
• Dividends on employer securities; or
• S corporation allocations treated as deemed distributions.

When rolling over a distribution, taxpayers have the option to either roll over the entire distribution or roll over an amount less than the entire distribution. The taxpayer needs to consider that any amounts not rolled over are taxable as ordinary income.

Most taxpayers and tax professionals operate under the provisions contained in Sec. 7503 for acts that must be performed with the IRS. This Code section provides that when the deadline to perform an act (such as filing a tax return) falls on a weekend or legal holiday, that act is considered to have been performed timely if it is performed on the next day that is not a weekend or holiday. Taxpayers and tax professionals should keep in mind that completing a rollover of an eligible rollover distribution is not an act that is performed with the IRS. Rather it is an act performed with a financial institution, so the extension that is provided when the deadline falls on a weekend or holiday is not similarly extended.