By Sarah Brenner, JD
If you are planning on doing a 60-day rollover with your IRA funds, be sure you understand same-property rule. This is one of the lesser known rules that apply to rollovers and is one many taxpayers find confusing.
For IRA-to-IRA or Roth-to-Roth 60-day rollovers, the same property received is the property that must be rolled over. These rules also apply to SIMPLE and SEP IRAs. An individual cannot receive a distribution of cash and then roll over shares of stock that he purchases with the cash or that he currently owns. If cash is distributed from an IRA, then cash must be rolled over within 60 days.
Example: Jody takes a $60,000 distribution from her IRA. She cannot purchase stock with the $60,000 and roll over the stock to her IRA. Because cash was distributed, cash must be deposited as a rollover.
If a client takes an IRA distribution of property other than cash, the same property must be put back into a retirement account in a timely manner if the client wants to complete a valid rollover.
Example: Juan takes a distribution of 100 shares of Disney stock from his IRA. He must roll over the same 100 shares of Disney stock within 60 days to complete the transaction, regardless of whether the price of Disney shares have gone up, down or remained the same since the initial distribution. (Remember, it’s the same-property rule, not the same-value rule.)
Example: Juan from the previous example cannot receive an IRA distribution of 100 shares of Disney stock worth $135,000 and roll over $135,000 of another stock because it’s not the same property that was distributed from the IRA.
Violating the Same – Property Rule
Be careful! A violation of the same-property rule has serious consequences. The distribution is no longer eligible for rollover. If it is a traditional IRA distribution, it will likely be taxable. If property other than the same property is deposited to an IRA, it would be an excess contribution and would be subject to penalty if not corrected in a timely manner. The same-property rule, despite being a little obscure, could cost you your retirement savings. To be safe, and if you have any questions, consider seeking out a knowledgeable tax or financial advisor before starting your transaction.