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IRS Giving Breaks To Some Who Flub Their IRA Rollovers.(SERIES: FUNDS & PERSONAL FINANCE/MUTAL FUND QUARTERLY)(IBD SPECIAL REPORT)(TAXES)
Byline: PAUL KATZEFF
How do you spell relief? I-R-S, judging by recent acts of kindness by the Internal Revenue Service.
Acting on a good-guy policy created by Congress, the tax agency has exempted about 100 taxpayers in the past 18 months from its strict 60-day rollover deadline for individual retirement accounts. It published six new exemptions last Monday alone.
"The number is small vs. the total number of taxpayers," said Martin Nissenbaum, national director of personal income tax planning for Ernst & Young. "But the rulings give millions of taxpayers insight into how the IRS might rule if one of them sought an exemption."
Normally, if you withdraw money from an IRA, you have 60 days to redeposit it into another IRA or a retirement account like a 401(k).
If you don't complete a rollover within 60 days, the IRS usually treats the entire amount as taxable, subject to ordinary income rates. The top bracket this year is 35%.
"A withdrawal is not only subject to taxes," Nissenbaum said. "It also may be subject to a 10% penalty tax if you're under age 59 1/2."
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