IRA Rollover of Securities

[Margo]

The Cares Act allows RollOver from IRA. How does a brokerage firm process a rollover of securities? Once the stock in IRA at a price and quantity does the brokerage firm RollOver the securities at the withdrawn price. Naturally shares no longer at price when RollOver occurred.

Interested as made only stock rollover and wish to take advantage of the Cares Act before expiration on Aug 31.

Thank you

 

[Sunset]

Welcome.
I'm not clear on what you did, I'm thinking your moved some securities (stocks) from an IRA to another IRA , is this correct ?

 

[cathy63]

Could you be a bit more specific about what type of rollover you're trying to do? The only special rollover option I can think of that is related to the CARES act is that you can return RMDs that were taken from an IRA earlier in the year. If you somehow took out securities and now you want to put them back, you have to match the dollar value on the day they were previously removed. If they're worth less now, you'll have to make up the difference in cash.

 

[Margo]

Welcome.
I'm not clear on what you did, I'm thinking your moved some securities (stocks) from an IRA to another IRA , is this correct ?

I removed securities from a IRA to a regular cash brokerage account. Now I wish to return that transaction to the IRA account. According to my interpretation of the IRA account this would be a RollOver. I will replace the original removal from the IRA account. The brokerage firm (I believe) can just reverse the transaction even though the price of the securities may have changed as it is transfer between accounts. Does this make it clear?

 

[Margo]

Could you be a bit more specific about what type of rollover you're trying to do? The only special rollover option I can think of that is related to the CARES act is that you can return RMDs that were taken from an IRA earlier in the year. If you somehow took out securities and now you want to put them back, you have to match the dollar value on the day they were previously removed. If they're worth less now, you'll have to make up the difference in cash.

My understanding of a RollOver is you return the original transaction to the IRA account. As the shares reside in another account I believe it to be a book keeping task. The shares removed and thier value returned to the original account. Is this correct I ask? No 3rd party involved. Why should this be any different than returning cash?

 

[Sunset]

OP - You bring up an interesting thought, I think is what you are asking, so I made up an example:

I take out 1,000 shares of X from my IRA transferring them to my regular brokerage account, and the value on that day is $100,000.
I keep the shares in the regular brokerage account.

Now the shares fall badly and are worth $60,000 (yet I will be taxed on the $100,000 value), so I want to reverse the action, and put it back like it never happened.

Can I simply return the shares to the IRA due to CARES act permission ?

My thought (which is only my guess) is NO, the IRS only will consider the value of the transaction and not the actual contents of the transaction.
My thought is the IRS will want $100,000 back into IRA to undo the withdrawal.
Which is what cathy63 has said.

Hopefully smarter Tax folks here will know.

 

[njhowie]

When you roll over from one brokerage to another they use ACATS. That system/process also transfers the information for the date of purchase and cost basis of the securities in the account.

Go here for more info:
https://www.dtcc.com/clearing-services/equities-clearing-services/acats

As the shares reside in another account I believe it to be a book keeping task. The shares removed and thier value returned to the original account. Is this correct I ask? No 3rd party involved. Why should this be any different than returning cash?

HOWEVER, a rollover cannot happen between different account types (IRA to non-IRA or vice versa). When you moved securities from the IRA to your cash account, that was a withdrawal. When you "re-contribute"/replace the securities it will not be handled as a rollover as the account types are different.

There will likely be tax consequences no matter what you do:
https://www.consumerfinance.gov/about-us/blog/cares-act-early-retirement-withdrawal/

Possible tax consequences and ways to deal with them

There are possible tax consequences and different ways to deal with them. While the Act protects you from the 10 percent early distribution penalty, it does not exempt the withdrawn amount from taxes. The amount will be added to your annual income and taxed as such. If you don’t ask to have a percentage of the amount set aside for taxes when you withdraw, you could end up owing a lot when you file your 2020 taxes. The CARES Act distributes the tax burden over a period of up to three tax years, unless you choose not to, and lets you recontribute some or all the funds that you withdrew by the third year and file amended tax returns. You may need to hire a tax professional to help you file.

I agree with cathy63 and Sunset regarding replacing the value of the securities withdrawn as opposed to the number of shares. If the value dropped and you only replace the number of shares, you're going to owe taxes on the amount of the decline.

The Cares Act allows RollOver from IRA.

The CARES Act has nothing to do with "rollover" from IRA. It has to do with "withdrawals". Again, definitions. Rollovers happen between two accounts with the same registration, or permitted direction (e.g. 401k to IRA) and can happen at any time completely tax free in any amounts.

 

[cathy63]

My understanding of a RollOver is you return the original transaction to the IRA account. As the shares reside in another account I believe it to be a book keeping task. The shares removed and thier value returned to the original account. Is this correct I ask? No 3rd party involved. Why should this be any different than returning cash?

There is one type of rollover where you take money from an IRA and put it back into an IRA within 60 days. For this year only, because of the CARES act suspending RMDs, the IRS is extending the 60-day window up until August 31 for withdrawals made before then. You only have 10 days left to complete this type of rollover, so you need to call your broker ASAP and get started on it!

I did find this info, which says that what we said earlier about returning the value of the stock to your IRA is wrong: https://www.libertytrustco.com/can-...property-received-in-an-in-kind-distribution/

408(d)(3) provides one such exception – the rollover contribution – and spells out the requirements that must be met.

The requirements for the rollover to be valid are:

- The rollover must be completed within 60-days of the distribution
- The rollover must be made to a valid retirement account (such as an IRA or qualified plan)
- The taxpayer is allowed only one rollover in a 1-year period
- Required minimum distributions may not be rolled over
- Rollovers to inherited IRAs are not allowed
- The rollover must include the same money or property received in the distribution

There is some additional discussion there about IRS rulings in various cases, and it does look like you are correct that the stock shares themselves must be returned. I guess it is a good thing that you didn't liquidate them in the meantime.

 

[Margo]

OP - You bring up an interesting thought, I think is what you are asking, so I made up an example:

I take out 1,000 shares of X from my IRA transferring them to my regular brokerage account, and the value on that day is $100,000.
I keep the shares in the regular brokerage account.

Now the shares fall badly and are worth $60,000 (yet I will be taxed on the $100,000 value), so I want to reverse the action, and put it back like it never happened.

Can I simply return the shares to the IRA due to CARES act permission ?

My thought (which is only my guess) is NO, the IRS only will consider the value of the transaction and not the actual contents of the transaction.
My thought is the IRS will want $100,000 back into IRA to undo the withdrawal.
Which is what cathy63 has said.

Hopefully smarter Tax folks here will know.

You misunderstood the reason for the reverse. The reverse is due to the Cares Act allowing the distribution to be reversed. No tax evasion occurs as it is all within the account holder. Believe it to be a simple reverse of the original transaction.

Appreciate your thoughts

 

[Margo]

There is one type of rollover where you take money from an IRA and put it back into an IRA within 60 days. For this year only, because of the CARES act suspending RMDs, the IRS is extending the 60-day window up until August 31 for withdrawals made before then. You only have 10 days left to complete this type of rollover, so you need to call your broker ASAP and get started on it!

I did find this info, which says that what we said earlier about returning the value of the stock to your IRA is wrong: https://www.libertytrustco.com/can-...property-received-in-an-in-kind-distribution/



There is some additional discussion there about IRS rulings in various cases, and it does look like you are correct that the stock shares themselves must be returned. I guess it is a good thing that you didn't liquidate them in the meantime.

I agree with your opinion but brokerage firm appears to be stubborn and not thinking.

 

[Sunset]

You misunderstood the reason for the reverse. The reverse is due to the Cares Act allowing the distribution to be reversed. No tax evasion occurs as it is all within the account holder. Believe it to be a simple reverse of the original transaction.

Appreciate your thoughts

I wasn't thinking tax evasion (illegal), just tax avoidance (smart).

 

[Sunset]

I agree with your opinion but brokerage firm appears to be stubborn and not thinking.

How annoying (assuming you can do this, unusual move)

Speak to a manager, Boss, someone who knows something other than help desk

As long as you roll back the same securities, the idea that it cancels out the taxation can be fought later when you have more time. Quite possibly only fought with IRS, if at all.