In: Accounting
Which of the following is true about IRA rollovers?
The taxpayer must complete the entire rollover process within 90 days or the distribution will be taxable.
The taxpayer may not make tax-free rollovers from more than one IRA during a one year period.
An indirect rollover is subject to 10% federal tax withholding, and the taxpayer must come up with this amount themselves or it will be taxable.
The taxpayer cannot claim an exception to the 10% penalty.
Correct Answer:
Second option - The taxpayer may not make tax-free rollovers from more than one IRA during a one year period (12 months)
Other answers are incorrect due to the reasons mentioned respectively.
First option - It is incorrect because the rollover process should be completed within 60 days (not 90 days) or the distribution will be taxable
Third option - It is incorrect because an indirect rollover is subjected to a 20% (not 10%) federal tax witholding, and the taxpayer must come up with this amount themselves or it will be taxable.
Forth option - It is incorrect because there are exceptional situations where exception to 10% penalty can be availed, that is, withdrawal of IRA can be made without any penalty. They include :
1. Withdrawals to pay back taxes to the IRS
2. Distributions to the participant’s estate after their death
3. Distributions to a participant who has become permanently disabled
4. Distributions for unreimbursed medical expenses that exceed a maximum of 10% of the participant’s adjusted gross income for that year
5. Distributions taken as part of a series of substantially equal periodic payments approved by the IRS