Do you need to report a rollover IRA on your taxes? This article will help you understand the process and determine if you should declare the assets transferred from one IRA or retirement account to another. Rollover transactions are not taxable, unless it is made to a Roth IRA or a designated Roth account from another type of plan or account. However, it must include the tax base of a distribution that does not transfer as income in the year of the distribution. You must conduct the interview for each reinvestment or transfer event separately.
Even if you correctly execute an IRA reinvestment, your plan's trustee or depositary may misdeclare the 1099-R that they issue to you and the IRS. You can use the reinvestment of an IRA to transfer a portion of your funds from one IRA to another or, once withdrawn, to transfer part of a company's retirement plan to an IRA. If you inherit a traditional IRA from your spouse, you can transfer the funds to your own IRA, or you can choose to title it as an inherited IRA. The depositary of your IRA, or the company that hosts your IRA account, will send you this tax form at the end of any year in which you make a distribution or make a transfer.
Assuming that you complete the reinvestment within 60 days to avoid paying taxes on the amount distributed, you will also have to deposit the amount withheld to complete a reinvestment of 100% of the amount distributed. An IRA transfer occurs when funds are transferred from one IRA directly to another, generally between similar accounts (for example, a traditional IRA from a custodian can be transferred to a traditional IRA from a new custodian). Here are some important things to know about how these rollovers and transfers work and what you can and can't do. Amounts that must be distributed over a given year under the required minimum distribution rules are not eligible for IRA reinvestment treatment.
To prove that your transfer from one IRA to another is tax-free, declare the distributed amount of the IRA and the taxable amount on the appropriate lines of your federal income tax return. If you have small IRAs in many places and your employer's plan offers good funding options with low fees, using this reverse reinvestment option can be a way to consolidate everything in one place. However, if you inherit a traditional IRA from someone other than your spouse, you cannot transfer it or allow it to receive a cumulative contribution. To make sure you don't pay taxes for an IRA reinvestment or transfer, explain in detail any reinvestment or transfer transaction of an IRA to your tax preparer, or check all documentation if you prepare your own return.
To avoid withholding taxes, choose what's called a direct reinvestment from an IRA, in which the check is made in the name of your new financial institution as the new trustee or depositary. Similarly, you could have requested a direct transfer from your employer's plan to your traditional IRA.