Publication 590 (2013) INDIVIDUAL RETIREMENT ARRANGEMENTS (IRAs)

Trustees' fees. Trustees' administrative fees that are billed separately and paid in connection with your traditional IRA are not deductible as IRA contributions. However, they may be deductible as a miscellaneous itemized deduction on Schedule A (Form 1040). For information about miscellaneous itemized deductions, see Publication 529, Miscellaneous Deductions.

Brokers' commissions. These commissions are part of your IRA contribution and, as such, are deductible subject to the limits.

Full deduction. If neither you nor your spouse was covered for any part of the year by an employer retirement plan, you can take a deduction for total contributions to one or more of your traditional IRAs of up to the lesser of:

This limit is reduced by any contributions made to a 501(c)(18) plan on your behalf.

Kay Bailey Hutchison Spousal IRA. In the case of a married couple with unequal compensation who file a joint return, the deduction for contributions to the traditional IRA of the spouse with less compensation is limited to the lesser of:

This limit is reduced by any contributions to a section

Filing status. Your filing status depends primarily on your marital status. For this purpose, you need to know if your filing status is single or head of household, married filing jointly or qualifying widow(er), or married filing separately. If you need more information on filing status, see Publication 501, Exemptions, Standard Deduction, and Filing Information.

Lived apart from spouse. If you did not live with your spouse at any time during the year and you file a separate return, your filing status, for this purpose, is single.

Modified adjusted gross income (AGI). You can use Worksheet 1-1 to figure your modified AGI. If you made contributions to your IRA for 2013 and received a distribution from your IRA in 2013, see Both contributions for 2013 and distributions in 2013, later.

CAUTION: Do not assume that your modified AGI is the same as your compensation. Your modified AGI may include income in addition to your compensation (discussed earlier) such as interest, dividends, and income from IRA distributions.

Form 1040. If you file Form 1040, refigure the amount on the page 1 "adjusted gross income" line without taking into account any of the following amounts.

This is your modified AGI.

Form 1040A. If you file Form 1040A, refigure the amount on the page 1 "adjusted gross income" line without taking into account any of the following amounts.

This is your modified AGI.

Form 1040NR. If you file Form 1040NR, refigure the amount on the page 1 "adjusted gross income" line without taking into account any of the following amounts.

This is your modified AGI.

Income from IRA distributions. If you received distributions in 2013 from one or more traditional IRAs and your traditional IRAs include only deductible contributions, the distributions are fully taxable and are included in your modified AGI.

Both contributions for 2013 and distributions in 2013. If all three of the following apply, any IRA distributions you received in 2013 may be partly tax free and partly taxable.

If this is your situation, you must figure the taxable part of the traditional IRA distribution before you can figure your modified AGI. To do this, you can use Worksheet 1-5, later.

If at least one of the above does not apply, figure your modified AGI using Worksheet 1-1, later.

How To Figure Your Reduced IRA Deduction

If you or your spouse is covered by an employer retirement plan and you did not receive any social security benefits, you can figure your reduced IRA deduction by using Worksheet 1-2. Figuring Your Reduced IRA Deduction for 2013. The Instructions for Form 1040A, and Form 1040NR include similar worksheets that you can use instead of the worksheet in this publication.

If you or your spouse is covered by an employer retirement plan, and you received any social security benefits, see Social Security Recipients, earlier.

Note. If you were married and both you and your spouse contributed to IRAs, figure your deduction and your spouse's deduction separately.

Worksheet 1-1. Figuring Your Modified AGI

 Keep for Your Records

Use this worksheet to figure your modified AGI for traditional IRA

 purposes.

 ----------------------------------------------------------------------

1.

 Enter your adjusted gross income (AGI) from Form 1040,

    line 38; Form 1040A, line 22; or Form 1040NR, line 37,

    figured without taking into account the amount from

    Form 1040, line 32; Form 1040A, line 17; or Form 1040NR,

    line 32                                                  

1.

 ______

2.

 Enter any student loan interest deduction from

    Form 1040A, line 18; or

    Form 1040NR, line 33                                      

2.

 ______

3.

 Enter any tuition and fees deduction from Form 1040,

    line 34, or Form 1040A, line 19                          

3.

 ______

4.

 Enter any domestic production activities deduction from

    Form 1040, line 35, or Form 1040NR, line 34              

4.

 ______

5.

 Enter any foreign earned income exclusion and/or housing

    exclusion from Form 2555-EZ, line

    18                                                        

5.

 ______

6.

 Enter any foreign housing deduction from Form 2555, line

    50                                                        

6.

 ______

7.

 Enter any excludable savings bond interest from

    Form 8815, line 14                                        

7.

 ______

8.

 Enter any excluded employer-provided adoption benefits

    from Form 8839, line 28                                  

8.

 ______

9.

 Add lines 1 through 8. This is your

Modified AGI

 for

    traditional IRA purposes                                  

9.

 ______

 ----------------------------------------------------------------------

Reporting Deductible Contributions

If you file Form 1040, enter your IRA deduction on line 32 of that form. If you file Form 1040A, enter your IRA deduction on line 17 of that form. If you file Form 1040NR, enter your IRA deduction on line 32 of that form. You cannot deduct IRA contributions on Form 1040EZ or Form 1040NR-EZ.

Self-employed. If you are self-employed (a sole proprietor or partner) and have a SIMPLE IRA, enter your deduction for allowable plan contributions on Form 1040, line 28. If you file Form 1040NR, enter your deduction on line 28 of that form.

Nondeductible Contributions

Although your deduction for IRA contributions may be reduced or eliminated, contributions can be made to your IRA of up to the general limit or, if it applies, the Kay Bailey Hutchison Spousal IRA limit. The difference between your total permitted contributions and your IRA deduction, if any, is your nondeductible contribution.

Example. Tony is 29 years old and single. In 2013, he was covered by a retirement plan at work. His salary is $62,000. His modified AGI is $70,000. Tony makes a $5,500 IRA contribution for 2013. Because he was covered by a retirement plan and his modified AGI is above $69,000, he cannot deduct his $5,500 IRA contribution. He must designate this contribution as a nondeductible contribution by reporting it on Form 8606.

Repayment of reservist distributions. Nondeductible contributions may include repayments of qualified reservist distributions. For more information, see Qualified reservist repayments under How Much Can Be Contributed, earlier.

Form 8606. To designate contributions as nondeductible, you must file Form 8606. (See the filled-in Forms 8606 in this chapter.)

You do not have to designate a contribution as nondeductible until you file your tax return. When you file, you can even designate otherwise deductible contributions as nondeductible contributions.

You must file Form 8606 to report nondeductible contributions even if you do not have to file a tax return for the year.

CAUTION: A Form 8606 is not used for the year that you make a rollover from a qualified retirement plan to a traditional IRA and the rollover includes nontaxable amounts. In those situations, a Form 8606 is completed for the year you take a distribution from that IRA. See Form 8606 under Distributions Fully or Partly Taxable, later.

Failure to report nondeductible contributions. If you do not report nondeductible contributions, all of the contributions to your traditional IRA will be treated like deductible contributions when withdrawn. All distributions from your IRA will be taxed unless you can show, with satisfactory evidence, that nondeductible contributions were made.

Penalty for overstatement. If you overstate the amount of nondeductible contributions on your Form 8606 for any tax year, you must pay a penalty of $100 for each overstatement, unless it was due to reasonable cause.

Penalty for failure to file Form 8606. You will have to pay a $50 penalty if you do not file a required Form 8606, unless you can prove that the failure was due to reasonable cause.

Tax on earnings on nondeductible contributions. As long as contributions are within the contribution limits, none of the earnings or gains on contributions (deductible or nondeductible) will be taxed until they are distributed.

Cost basis. You will have a cost basis in your traditional IRA if you made any nondeductible contributions. Your cost basis is the sum of the nondeductible contributions to your IRA minus any withdrawals or distributions of nondeductible contributions.

CAUTION: Commonly, distributions from your traditional IRAs will include both taxable and nontaxable (cost basis) amounts. See Are Distributions Taxable, later, for more information.

RECORDS: Recordkeeping. There is a recordkeeping worksheet, Appendix A. Summary Record of Traditional IRA(s) for 2013, that you can use to keep a record of deductible and nondeductible IRA contributions.

Examples--Worksheet for Reduced IRA Deduction for 2013

The following examples illustrate the use of Worksheet 1-2, Figuring Your Reduced IRA Deduction for 2013.

Example 1. For 2013, Tom and Betty file a joint return on Form 1040. They are both 39 years old. They are both employed and Tom is covered by his employer's retirement plan. Tom's salary is $59,000 and Betty's is $32,555. They each have a traditional IRA and their combined modified AGI, which includes $5,000 interest and dividend income, is $96,555. Because their modified AGI is between $95,000 and $115,000 and Tom is covered by an employer plan, Tom is subject to the deduction phaseout discussed earlier under Limit if Covered by Employer Plan.

For 2013, Tom contributed $5,500 to his IRA and Betty contributed $5,500 to hers. Even though they file a joint return, they must use separate worksheets to figure the IRA deduction for each of them.

Tom can take a deduction of only $5,080.

He can choose to treat the $5,080 as either deductible or nondeductible contributions. He can either leave the $420 ($5,500 - $5,080) of nondeductible contributions in his IRA or withdraw them by April 15, 2014. He decides to treat the $5,080 as deductible contributions and leave the $420 of nondeductible contributions in his IRA.

Using Worksheet 1-2, Figuring Your Reduced IRA Deduction for 2013, Tom figures his deductible and nondeductible amounts as shown on Worksheet 1-2. Figuring Your Reduced IRA Deduction for 2013--Example 1 Illustrated.

Betty figures her IRA deduction as follows. Betty can treat all or part of her contributions as either deductible or nondeductible. This is because her $5,500 contribution for 2013 is not subject to the deduction phaseout discussed earlier under Limit if Covered by Employer Plan. She does not need to use Worksheet 1-2, Figuring Your Reduced IRA Deduction for 2013, because their modified AGI is not within the phaseout range that applies. Betty decides to treat her $5,500 IRA contributions as deductible.

The IRA deductions of $5,080 and $5,500 on the joint return for Tom and Betty total $10,580.

Example 2. For 2013, Ed and Sue file a joint return on Form 1040. They are both 39 years old. Ed is covered by his employer's retirement plan. Ed's salary is $45,000. Sue had no compensation for the year and did not contribute to an IRA. Sue is not covered by an employer plan. Ed contributed $5,500 to his traditional IRA and $5,500 to a traditional IRA for Sue (a Kay Bailey Hutchison Spousal IRA). Their combined modified AGI, which includes $2,000 interest and dividend income and a large capital gain from the sale of stock, is $180,555.

Because the combined modified AGI is $115,000 or more, Ed cannot deduct any of the contribution to his traditional IRA. He can either leave the $5,500 of nondeductible contributions in his IRA or withdraw them by April 15, 2014.

Sue figures her IRA deduction as shown on Worksheet 1-2. Figuring Your Reduced IRA Deduction for 2013--Example 2 Illustrated.

What if You Inherit an IRA?

If you inherit a traditional IRA, you are called a beneficiary. A beneficiary can be any person or entity the owner chooses to receive the benefits of the IRA after he or she dies. Beneficiaries of a traditional IRA must include in their gross income any taxable distributions they receive.

Inherited from spouse. If you inherit a traditional IRA from your spouse, you generally have the following three choices. You can:

You will be considered to have chosen to treat the IRA as your own if:

 Keep for Your Records

 (Use only if you or your spouse is covered by an employer plan and

 your modified AGI falls between the two amounts shown below for your

 coverage situation and filing status.)

Note.

 If you were married and both you and your spouse contributed to

 IRAs, figure your deduction and your spouse's deduction separately.

 ----------------------------------------------------------------------

AND your       THEN enter

                     AND your                modified AGI   on line 1

 IF you . . .        filing status is . . .  is over . . .  below . . .

 ----------------------------------------------------------------------

 are

covered

 by an     single or head of

 employer plan            household             $59,000       $69,000

                     --------------------------------------------------

                     married filing jointly

                         or qualifying

                            widow(er)           $95,000      $115,000

                     --------------------------------------------------

                          married filing

                            separately             $0         $10,000

 ----------------------------------------------------------------------

 are

not covered

 by  married filing jointly    $178,000      $188,000

 an employer plan,   --------------------------------------------------

 but your spouse is       married filing

covered

                    separately             $0         $10,000

 ----------------------------------------------------------------------

1.

 Enter applicable amount from table above                  

1.

 ______

2.

 Enter your

modified AGI

 (that of both spouses, if

    married filing jointly)                                  

2.

 ______

Note.

 If line 2 is equal to or more than the amount on

    line 1,

stop here.

 Your IRA contributions are not

    deductible. See

Nondeductible Contributions,

 earlier.

3.

 Subtract line 2 from line 1.

If line 3 is $10,000 or

    more ($20,000 or more if married filing jointly or

    qualifying widow(er) and you are covered by an employer

    plan), stop here.

 You can take a full IRA deduction for

    contributions of up to $5,500 ($6,500 if you are age 50

    or older) or 100% of your (and if married filing

    jointly, your spouse's) compensation, whichever is less  

3.

 ______

4.

 Multiply line 3 by the percentage below that applies to

    you. If the result is not a multiple of $10, round it to

    the next highest multiple of $10. (For example, $611.40

    is rounded to $620.) However, if the result is less than

    $200, enter $200.

      • Married filing jointly or qualifying widow(er)   }

and

 you are covered by an employer plan,         }

        multiply line 3 by 27.5% (.275) (by 32.5% (.325) }

        if you are age 50 or older).                     }    

4.

 ______

                                                         }

      • All others, multiply line 3 by 55% (.55) (by 65% }

        (.65) if you are age 50 or older).               }

5.

 Enter your compensation minus any deductions on

    Form 1040 or Form 1040NR, line 27 (deductible part of

    self-employment tax) and line 28 (self-employed SEP,

    SIMPLE, and qualified plans). If you are filing a joint

    return and your compensation is less than your spouse's,

    include your spouse's compensation reduced by his or her

    traditional IRA and Roth IRA contributions for this

    year. If you file Form 1040 or Form 1040NR, do not

    reduce your compensation by any losses from

    self-employment                                          

5.

 ______

6.

 Enter contributions made, or to be made, to your IRA for

    2013, but

do not

 enter more than $5,500 ($6,500 if you

    are age 50 or older). If contributions are more than

    $5,500 ($6,500 if you are age 50 or older), see

Excess

    Contributions,

 later.                                    

6.

 ______

7. IRA deduction.

 Compare lines 4, 5, and 6. Enter the

    smallest amount (or a smaller amount if you choose) here

    and on the 1040A, or 1040NR line for your

    IRA, whichever applies. If line 6 is more than line 7

    and you want to make a nondeductible contribution, go to

    line 8                                                    

7.

 ______

8. Nondeductible contribution.

 Subtract line 7 from line 5

    or 6, whichever is smaller. Enter the result here and on

    line 1 of your Form 8606                                  

8.

 ______

 ----------------------------------------------------------------------

 (Use only if you or your spouse is covered by an employer plan and

 your modified AGI falls between the two amounts shown below for your

 coverage situation and filing status.)

Note.

 If you were married and both you and your spouse contributed to

 IRAs, figure your deduction and your spouse's deduction separately.

 ----------------------------------------------------------------------

AND your       THEN enter

                     AND your                modified AGI   on line 1

 IF you . . .        filing status is . . .  is over . . .  below . . .

 ----------------------------------------------------------------------

 are

covered

 by an     single or head of

 employer plan            household             $59,000       $69,000

                     --------------------------------------------------

                     married filing jointly

                         or qualifying

                            widow(er)           $95,000      $115,000

                     --------------------------------------------------

                          married filing

                            separately             $0         $10,000

 ----------------------------------------------------------------------

 are

not covered

 by  married filing jointly     $178,000     $188,000

 an employer plan,   --------------------------------------------------

 but your spouse is       married filing

covered

                    separately           $0           $10,000

 ----------------------------------------------------------------------

1.

 Enter applicable amount from table above                

1.

115,000

2.

 Enter your

modified AGI

 (that of both spouses, if

    married filing jointly)                                  

2.

 96,555

Note.

 If line 2 is equal to or more than the amount on

    line 1,

stop here.

 Your IRA contributions are not

    deductible. See

Nondeductible Contributions,

 earlier.

3.

 Subtract line 2 from line 1.

If line 3 is $10,000 or

    more ($20,000 or more if married filing jointly or

    qualifying widow(er) and you are covered by an employer

    plan), stop here.

 You can take a full IRA deduction for

    contributions of up to $5,500 ($6,500 if you are age 50

    or older) or 100% of your (and if married filing

    jointly, your spouse's) compensation, whichever is less  

3.

 18,445

4.

 Multiply line 3 by the percentage below that applies to

    you. If the result is not a multiple of $10, round it

    to the next highest multiple of $10. (For example,

    $611.40 is rounded to $620.) However, if the result is

    less than $200, enter $200.

      • Married filing jointly or qualifying widow(er)   }

and

 you are covered by an employer plan,         }

        multiply line 3 by 27.5% (.275) (by 32.5% (.325) }

        if you are age 50 or older).                     }  

4.

  5,080

                                                         }

      • All others, multiply line 3 by 55% (.55) (by 65% }

        (.65) if you are age 50 or older).               }

5.

 Enter your compensation minus any deductions on

    Form 1040 or Form 1040NR, line 27 (deductible part of

    self-employment tax) and line 28 (self-employed SEP,

    SIMPLE, and qualified plans). If you are filing a joint

    return and your compensation is less than your

    spouse's, include your spouse's compensation reduced by

    his or her traditional IRA and Roth IRA contributions

    for this year. If you file Form 1040 or Form 1040NR, do

    not reduce your compensation by any losses from

    self-employment                                          

5.

 59,000

6.

 Enter contributions made, or to be made, to your IRA

    for 2013, but

do not

 enter more than $5,500 ($6,500 if

    you are age 50 or older). If contributions are more

    than $5,500 ($6,500 if you are age 50 or older), see

Excess Contributions,

 later.                            

6.

  5,500

7. IRA deduction.

 Compare lines 4, 5, and 6. Enter the

    smallest amount (or a smaller amount if you choose)

    here and on the 1040A, or 1040NR line for

    your IRA, whichever applies. If line 6 is more than

    line 7 and you want to make a nondeductible

    contribution, go to line 8                              

7.

  5,080

8. Nondeductible contribution.

 Subtract line 7 from line 5

    or 6, whichever is smaller. Enter the result here and

    on line 1 of your Form 8606                              

8.

    420

 ----------------------------------------------------------------------

 (Use only if you or your spouse is covered by an employer plan and

 your modified AGI falls between the two amounts shown below for your

 coverage situation and filing status.)

Note.

 If you were married and both you and your spouse contributed to

 IRAs, figure your deduction and your spouse's deduction separately.

 ----------------------------------------------------------------------

AND your       THEN enter

                     AND your                modified AGI   on line 1

 IF you . . .        filing status is . . .  is over . . .  below . . .

 ----------------------------------------------------------------------

 are

covered

 by an     single or head of

 employer plan            household             $59,000       $69,000

                     --------------------------------------------------

                     married filing jointly

                         or qualifying

                            widow(er)           $95,000      $115,000

                     --------------------------------------------------

                          married filing

                            separately             $0         $10,000

 ----------------------------------------------------------------------

 are

not covered

 by  married filing jointly    $178,000      $188,000

 an employer plan,   --------------------------------------------------

 but your spouse is       married filing

covered

                    separately            $0          $10,000

 ----------------------------------------------------------------------

1.

 Enter applicable amount from table above                

1.

188,000

2.

 Enter your

modified AGI

 (that of both spouses, if

    married filing jointly)                                  

2.

180,555

Note.

 If line 2 is equal to or more than the amount on

    line 1,

stop here.

 Your IRA contributions are not

    deductible. See

Nondeductible Contributions,

 earlier.

3.

 Subtract line 2 from line 1.

If line 3 is $10,000 or

    more ($20,000 or more if married filing jointly or

    qualifying widow(er) and you are covered by an employer

    plan), stop here.

 You can take a full IRA deduction for

    contributions of up to $5,500 ($6,500 if you are age 50

    or older) or 100% of your (and if married filing

    jointly, your spouse's) compensation, whichever is less  

3.

  7,445

4.

 Multiply line 3 by the percentage below that applies to

    you. If the result is not a multiple of $10, round it

    to the next highest multiple of $10. (For example,

    $611.40 is rounded to $620.) However, if the result is

    less than $200, enter $200.

      • Married filing jointly or qualifying widow(er)   }

and

 you are covered by an employer plan,         }

        multiply line 3 by 27.5% (.275) (by 32.5% (.325) }

        if you are age 50 or older).                     }  

4.

  4,100

                                                         }

      • All others, multiply line 3 by 55% (.55) (by 65% }

        (.65) if you are age 50 or older).               }

5.

 Enter your compensation minus any deductions on

    Form 1040 or Form 1040NR, line 27 (deductible part of

    self-employment tax) and line 28 (self-employed SEP,

    SIMPLE, and qualified plans). If you are filing a joint

    return and your compensation is less than your

    spouse's, include your spouse's compensation reduced by

    his or her traditional IRA and Roth IRA contributions

    for this year. If you file Form 1040 or Form 1040NR, do

    not reduce your compensation by any losses from

    self-employment                                          

5.

 39,500

6.

 Enter contributions made, or to be made, to your IRA

    for 2013, but

do not

 enter more than $5,500 ($6,500 if

    you are age 50 or older). If contributions are more

    than $5,500 ($6,500 if you are age 50 or older), see

Excess Contributions,

 later.                            

6.

  5,500

7. IRA deduction.

 Compare lines 4, 5, and 6. Enter the

    smallest amount (or a smaller amount if you choose)

    here and on the 1040A, or 1040NR line for

    your IRA, whichever applies. If line 6 is more than

    line 7 and you want to make a nondeductible

    contribution, go to line 8                              

7.

  4,100

8. Nondeductible contribution.

 Subtract line 7 from line 5

    or 6, whichever is smaller. Enter the result here and

    on line 1 of your Form 8606                              

8.

  1,400

 ----------------------------------------------------------------------

You will only be considered to have chosen to treat the IRA as your own if:

However, if you receive a distribution from your deceased spouse's IRA, you can roll that distribution over into your own IRA within the 60-day time limit, as long as the distribution is not a required distribution, even if you are not the sole beneficiary of your deceased spouse's IRA. For more information, see

later.

Inherited from someone other than spouse. If you inherit a traditional IRA from anyone other than your deceased spouse, you cannot treat the inherited IRA as your own. This means that you cannot make any contributions to the IRA. It also means you cannot roll over any amounts into or out of the inherited IRA. However, you can make a trustee-to-trustee transfer as long as the IRA into which amounts are being moved is set up and maintained in the name of the deceased IRA owner for the benefit of you as beneficiary.

Like the original owner, you generally will not owe tax on the assets in the IRA until you receive distributions from it. You must begin receiving distributions from the IRA under the rules for distributions that apply to beneficiaries.

IRA with basis. If you inherit a traditional IRA from a person who had a basis in the IRA because of nondeductible contributions, that basis remains with the IRA. Unless you are the decedent's spouse and choose to treat the IRA as your own, you cannot combine this basis with any basis you have in your own traditional IRA(s) or any basis in traditional IRA(s) you inherited from other decedents. If you take distributions from both an inherited IRA and your IRA, and each has basis, you must complete separate Forms 8606 to determine the taxable and nontaxable portions of those distributions.

Federal estate tax deduction. A beneficiary may be able to claim a deduction for estate tax resulting from certain distributions from a traditional IRA. The beneficiary can deduct the estate tax paid on any part of a distribution that is income in respect of a decedent. He or she can take the deduction for the tax year the income is reported. For information on claiming this deduction, see Estate Tax Deduction under Other Tax Information in Publication 559, Survivors, Executors, and Administrators.

Any taxable part of a distribution that is not income in respect of a decedent is a payment the beneficiary must include in income. However, the beneficiary cannot take any estate tax deduction for this part.

A surviving spouse can roll over the distribution to another traditional IRA and avoid including it in income for the year received.

More information. For more information about rollovers, required distributions, and inherited IRAs, see:

You can transfer, tax free, assets (money or property) from other retirement programs (including traditional IRAs) to a traditional IRA. You can make the following kinds of transfers.

This chapter discusses all three kinds of transfers.

Transfers to Roth IRAs. Under certain conditions, you can move assets from a traditional IRA or from a designated Roth account to a Roth IRA. For more information about these transfers, see Converting From Any Traditional IRA Into a Roth IRA, later in this chapter, and Can You Move Amounts Into a Roth IRA? in chapter 2.

Transfers to Roth IRAs from other retirement plans. Under certain conditions, you can move assets from a qualified retirement plan to a Roth IRA. For more information, see Can You Move Amounts Into a Roth IRA? in chapter 2.

Trustee-to-Trustee Transfer

A transfer of funds in your traditional IRA from one trustee directly to another, either at your request or at the trustee's request, is not a rollover. Because there is no distribution to you, the transfer is tax free. Because it is not a rollover, it is not affected by the 1-year waiting period required between rollovers. This waiting period is discussed later under Rollover From One IRA Into Another.

For information about direct transfers from retirement programs other than traditional IRAs, see Direct rollover option, later.

Rollovers

Generally, a rollover is a tax-free distribution to you of cash or other assets from one retirement plan that you contribute to another retirement plan. The contribution to the second retirement plan is called a "rollover contribution."

Note. An amount rolled over tax free from one retirement plan to another is generally includible in income when it is distributed from the second plan.

Kinds of rollovers to a traditional IRA. You can roll over amounts from the following plans into a traditional IRA:

Also, see Table 1-4 above.

Table 1-4. Rollover Chart

 The following chart indicates the rollovers that are permitted between

 various types of plans.

 ----------------------------------------------------------------------

Roll To

 ----------------------------------------------------------------------

Traditional   SIMPLE

                    Roth IRA       IRA           IRA     SEP IRA

       --------------------------------------------------------------

Roth IRA

     Yes            No            No      No

       --------------------------------------------------------------

Traditional

  Yes

³

           Yes           No      Yes

IRA

       --------------------------------------------------------------

SIMPLE

       Yes

³

, after    Yes, after 2  Yes     Yes, after 2

IRA

          2 years        years                 years

       --------------------------------------------------------------

SEP IRA

      Yes

³

           Yes           No      Yes

       --------------------------------------------------------------

457(b) Plan

  Yes

³

           Yes           No      Yes

       --------------------------------------------------------------

Roll  Qualified

    Yes

³

           Yes           No      Yes

From  Plan

¹

       (pre-tax)

       --------------------------------------------------------------

403(b) Plan

  Yes

³

           Yes           No      Yes

(pre-tax)

       --------------------------------------------------------------

Designated

   Yes            No            No      No

Roth

       Account

       (401(k),

       403(b) or

       457(b)

²

)

 ----------------------------------------------------------------------

[Table Continued]

 ----------------------------------------------------------------------

Roll To

 ----------------------------------------------------------------------

Designated

                                                             Roth

                                                             Account

                                   Qualified                 (401(k),

                                   Plan

¹

       403(b) Plan   403(b) or

                    457(b) Plan    (pre-tax)   (pre-tax)     457(b)

²

)

 ----------------------------------------------------------------------

Roth IRA

     No             No          No            No

       ----------------------------------------------------------------

Traditional

  Yes

⁴

           Yes         Yes           No

IRA

       ----------------------------------------------------------------

SIMPLE

       Yes

⁴

, after    Yes, after  Yes, after    No

IRA

          2 years        2 years     2 years

       ----------------------------------------------------------------

SEP IRA

      Yes

⁴

           Yes         Yes           No

       ----------------------------------------------------------------

457(b) Plan

  Yes            Yes         Yes           Yes,

^3,5

                                                             after

                                                             12/31/10

       ----------------------------------------------------------------

Roll  Qualified

    Yes

⁴

           Yes         Yes

Yes,

^3,5

From  Plan

¹

                                                 after

(pre-tax)

                                             9/27/10

       ----------------------------------------------------------------

403(b) Plan

  Yes

⁴

           Yes         Yes

Yes,

^3,5

(pre-tax)

                                             after

                                                             9/27/10

       ----------------------------------------------------------------

Designated

   No             No          No            Yes, if a

Roth

                                                  direct

Account

                                               trustee-

(401(k),

                                              to-trustee

403(b) or

                                             transfer

457(b)

²

)

 ----------------------------------------------------------------------

¹

 Qualified plans include, for example, profit-sharing, 401(k), money

 purchase, and defined benefit plans.

²

 Governmental 457(b) plans, after December 31, 2010.

³

 Must include in income.

⁴

 Must have separate accounts.

⁵

 Must be an in-plan rollover.

 ======================================================================

You cannot deduct a rollover contribution, but you must report the rollover distribution on your tax return as discussed later under

and

Rollover notice. A written explanation of rollover treatment must be given to you by the plan (other than an IRA) making the distribution. See Written explanation to recipients, later, for more details.

Kinds of rollovers from a traditional IRA. You may be able to roll over, tax free, a distribution from your traditional IRA into a qualified plan. These plans include the Federal Thrift Savings Fund (for federal employees), deferred compensation plans of state or local governments (section 457 plans), and tax-sheltered annuity plans (section 403(b) plans). The part of the distribution that you can roll over is the part that would otherwise be taxable (includible in your income). Qualified plans may, but are not required to, accept such rollovers.

Tax treatment of a rollover from a traditional IRA to an eligible retirement plan other than an IRA. Ordinarily, when you have basis in your IRAs, any distribution is considered to include both nontaxable and taxable amounts. Without a special rule, the nontaxable portion of such a distribution could not be rolled over. However, a special rule treats a distribution you roll over into an eligible retirement plan as including only otherwise taxable amounts if the amount you either leave in your IRAs or do not roll over is at least equal to your basis. The effect of this special rule is to make the amount in your traditional IRAs that you can roll over to an eligible retirement plan as large as possible.

Eligible retirement plans. The following are considered eligible retirement plans.

You generally must make the rollover contribution by the 60th day after the day you receive the distribution from your traditional IRA or your employer's plan.

Example. You received an eligible rollover distribution from your traditional IRA on June 30, 2013, that you intend to roll over to your 403(b) plan. To postpone including the distribution in your income, you must complete the rollover by August 29, 2013, the 60th day following June 30.

The IRS may waive the 60-day requirement where the failure to do so would be against equity or good conscience, such as in the event of a casualty, disaster, or other event beyond your reasonable control. For exceptions to the 60-day period, see Automatic waiver, Other waivers, and Extension of rollover period, later.

Rollovers completed after the 60-day period. In the absence of a waiver, amounts not rolled over within the 60-day period do not qualify for tax-free rollover treatment. You must treat them as a taxable distribution from either your IRA or your employer's plan. These amounts are taxable in the year distributed, even if the 60-day period expires in the next year. You may also have to pay a 10% additional tax on early distributions as discussed later under Early Distributions.

Unless there is a waiver or an extension of the 60-day rollover period, any contribution you make to your IRA more than 60 days after the distribution is a regular contribution, not a rollover contribution.

Example. You received a distribution in late December 2013 from a traditional IRA that you do not roll over into another traditional IRA within the 60-day limit. You do not qualify for a waiver. This distribution is taxable in 2013 even though the 60-day limit was not up until 2014.

Automatic waiver. The 60-day rollover requirement is waived automatically only if all of the following apply.

If you do not qualify for an automatic waiver, you can apply to the IRS for a waiver of the 60-day rollover requirement. To apply for a waiver, you must submit a request for a letter ruling under the appropriate IRS revenue procedure. This revenue procedure is generally published in the first Internal Revenue Bulletin of the year. You must also pay a user fee with the application.

In determining whether to grant a waiver, the IRS will consider all relevant facts and circumstances, including:

The rules regarding the amount that can be rolled over within the 60-day time period also apply to the amount that can be deposited due to a waiver. For example, if you received $6,000 from your IRA, the most that you can deposit into an eligible retirement plan due to a waiver is $6,000.

Extension of rollover period. If an amount distributed to you from a traditional IRA or a qualified employer retirement plan is a frozen deposit at any time during the 60-day period allowed for a rollover, two special rules extend the rollover period.

This is any deposit that cannot be withdrawn from a financial institution because of either of the following reasons.

You can withdraw, tax free, all or part of the assets from one traditional IRA if you reinvest them within 60 days in the same or another traditional IRA. Because this is a rollover, you cannot deduct the amount that you reinvest in an IRA.

TIP: You may be able to treat a contribution made to one type of IRA as having been made to a different type of IRA. This is called recharacterizing the contribution. See Recharacterizations in this chapter for more information.

Waiting period between rollovers. Generally, if you make a tax-free rollover of any part of a distribution from a traditional IRA, you cannot, within a 1-year period, make a tax-free rollover of any later distribution from that same IRA. You also cannot make a tax-free rollover of any amount distributed, within the same 1-year period, from the IRA into which you made the tax-free rollover.

The 1-year period begins on the date you receive the IRA distribution, not on the date you roll it over into an IRA.

Example. You have two traditional IRAs, IRA-1 and IRA-2. You make a tax-free rollover of a distribution from IRA-1 into a new traditional IRA (IRA-3). You cannot, within 1 year of the distribution from IRA-1, make a tax-free rollover of any distribution from either IRA-1 or IRA-3 into another traditional IRA.

However, the rollover from IRA-1 into IRA-3 does not prevent you from making a tax-free rollover from IRA-2 into any other traditional IRA. This is because you have not, within the last year, rolled over, tax free, any distribution from IRA-2 or made a tax-free rollover into IRA-2.

Exception. There is an exception to the rule that amounts rolled over tax free into an IRA cannot be rolled over tax free again within the 1-year period beginning on the date of the original distribution. The exception applies to a distribution that meets all three of the following requirements.

If property is distributed to you from an IRA and you complete the rollover by contributing property to an IRA, your rollover is tax free only if the property you contribute is the same property that was distributed to you.

Partial rollovers. If you withdraw assets from a traditional IRA, you can roll over part of the withdrawal tax free and keep the rest of it. The amount you keep will generally be taxable (except for the part that is a return of nondeductible contributions). The amount you keep may be subject to the 10% additional tax on early distributions discussed later under What Acts Result in Penalties or Additional Taxes.

Required distributions. Amounts that must be distributed during a particular year under the required distribution rules (discussed later) are not eligible for rollover treatment.

Inherited IRAs. If you inherit a traditional IRA from your spouse, you generally can roll it over, or you can choose to make the inherited IRA your own as discussed earlier under What if You Inherit an IRA.

Not inherited from spouse. If you inherit a traditional IRA from someone other than your spouse, you cannot roll it over or allow it to receive a rollover contribution. You must withdraw the IRA assets within a certain period. For more information, see When Must You Withdraw Assets? (Required Minimum Distributions), later.

Rollover of required distributions not allowed. If the owner had a required distribution in the year of his or her death, you cannot roll over such distribution. If you do not treat the IRA as your own, you cannot roll over any of the required distributions in years after your deceased spouse's death. Any rollover contributions you make to your own IRA of these required distributions are subject to the 6% tax discussed in Tax on Excess Contributions, later.

For more information on distribution rules after the owner's death, see IRA Beneficiaries, later.

Reporting rollovers from IRAs. Report any rollover from one traditional IRA to the same or another traditional IRA on Form 1040A, lines 11a and 11b; or Form 1040NR, lines 16a and 16b.

Enter the total amount of the distribution on Form 1040, line 15a; Form 1040A, line 11a; or Form 1040NR, line 16a. If the total amount on Form 1040, line 15a; Form 1040A, line 11a; or Form 1040NR, line 16a, was rolled over, enter zero on Form 1040, line 15b; Form 1040A, line 11b; or Form 1040NR, line 16b. If the total distribution was not rolled over, enter the taxable portion of the part that was not rolled over on Form 1040, line 15b; Form 1040A, line 11b; or Form 1040NR, line 16b. Put "Rollover" next to line 15b, Form 1040; line 11b, Form 1040A; or line 16b, Form 1040NR. See your tax return instructions.

If you rolled over the distribution into a qualified plan (other than an IRA) or you make the rollover in 2014, attach a statement explaining what you did.

For information on how to figure the taxable portion, see Are Distributions Taxable, later.

Rollover From Employer's Plan Into an IRA

You can roll over into a traditional IRA all or part of an eligible rollover distribution you receive from your (or your deceased spouse's):

A qualified plan is one that meets the requirements of the Internal Revenue Code.

Eligible rollover distribution. Generally, an eligible rollover distribution is any distribution of all or part of the balance to your credit in a qualified retirement plan except the following.

Your rollover into a traditional IRA may include both amounts that would be taxable and amounts that would not be taxable if they were distributed to you, but not rolled over. To the extent the distribution is rolled over into a traditional IRA, it is not includible in your income.

TIP: Any nontaxable amounts that you roll over into your traditional IRA become part of your basis (cost) in your IRAs. To recover your basis when you take distributions from your IRA, you must complete Form 8606 for the year of the distribution. See Form 8606 under Distributions Fully or Partly Taxable, later.

Rollover by nonspouse beneficiary. If you are a designated beneficiary (other than a surviving spouse) of a deceased employee, you can roll over all or part of an eligible rollover distribution from one of the types of plans listed above into a traditional IRA. You must make the rollover by a direct trustee-to-trustee transfer into an inherited IRA.

You will determine your required minimum distributions in years after you make the rollover based on whether the employee died before his or her required beginning date for taking distributions from the plan. For more information, see Distributions after the employee's death under Tax on Excess Accumulation in Publication 575.

Written explanation to recipients. Before making an eligible rollover distribution, the administrator of a qualified retirement plan must provide you with a written explanation. It must tell you about all of the following.

The plan administrator must provide you with this written explanation no earlier than 90 days and no later than 30 days before the distribution is made.

However, you can choose to have a distribution made less than 30 days after the explanation is provided as long as both of the following requirements are met.

Contact the plan administrator if you have any questions regarding this information.

Withholding requirement. Generally, if an eligible rollover distribution is paid directly to you, the payer must withhold 20% of it. This applies even if you plan to roll over the distribution to a traditional IRA. You can avoid withholding by choosing the direct rollover option, discussed later.

Exceptions. The payer does not have to withhold from an eligible rollover distribution paid to you if either of the following conditions apply.

Other withholding rules. The 20% withholding requirement does not apply to distributions that are not eligible rollover distributions. However, other withholding rules apply to these distributions. The rules that apply depend on whether the distribution is a periodic distribution or a nonperiodic distribution. For either of these types of distributions, you can still choose not to have tax withheld. For more information, see Publication 575.

Direct rollover option. Your employer's qualified plan must give you the option to have any part of an eligible rollover distribution paid directly to a traditional IRA. The plan is not required to give you this option if your eligible rollover distributions are expected to total less than $200 for the year.

Withholding. If you choose the direct rollover option, no tax is withheld from any part of the designated distribution that is directly paid to the trustee of the traditional IRA.

If any part is paid to you, the payer must withhold 20% of that part's taxable amount.

Choosing an option. Table 1-5 next may help you decide which distribution option to choose. Carefully compare the effects of each option.

Table 1-5. Comparison of Payment to You Versus Direct Rollover

 ----------------------------------------------------------------------

Result of a payment to        Result of a

 Affected item   you                           direct rollover

 ----------------------------------------------------------------------

 withholding     The payer must withhold           There is no

                 20% of the taxable part.          withholding.

 ----------------------------------------------------------------------

 additional tax  If you are under age 59 1/2,

                 a 10% additional tax may         There is no 10%

                 apply to the taxable part      additional tax. See

                 (including an amount          

Early Distributions,

                 equal to the tax withheld)            later.

                 that is not rolled over.

 ----------------------------------------------------------------------

 when to report  Any taxable part              Any taxable part is not

 as income       (including the taxable part    income to you until

                 of any amount withheld)       later distributed to you

                 not rolled over is income          from the IRA.

                 to you in the year paid.

 ----------------------------------------------------------------------

If you have a lump-sum distribution and do not plan to roll over any part of it, the distribution may be eligible for special tax treatment that could lower your tax for the distribution year. In that case, you may want to see Form 4972, Tax on Lump-Sum Distributions, and its instructions to determine whether your distribution qualifies for special tax treatment and, if so, to figure your tax under the special methods.

You can then compare any advantages from using Form 4972 to figure your tax on the lump-sum distribution with any advantages from rolling over all or part of the distribution. However, if you roll over any part of the lump-sum distribution, you cannot use the Form 4972 special tax treatment for any part of the distribution.

Contributions you made to your employer's plan. You can roll over a distribution of voluntary deductible employee contributions (DECs) you made to your employer's plan. Prior to January 1, 1987, employees could make and deduct these contributions to certain qualified employers' plans and government plans. These are not the same as an employee's elective contributions to a 401(k) plan, which are not deductible by the employee.

If you receive a distribution from your employer's qualified plan of any part of the balance of your DECs and the earnings from them, you can roll over any part of the distribution.

No waiting period between rollovers. The once-a-year limit on IRA-to-IRA rollovers does not apply to eligible rollover distributions from an employer plan. You can roll over more than one distribution from the same employer plan within a year.

IRA as a holding account (conduit IRA) for rollovers to other eligible plans. If you receive an eligible rollover distribution from your employer's plan, you can roll over part or all of it into one or more conduit IRAs. You can later roll over those assets into a new employer's plan. You can use a traditional IRA as a conduit IRA. You can roll over part or all of the conduit IRA to a qualified plan, even if you make regular contributions to it or add funds from sources other than your employer's plan. However, if you make regular contributions to the conduit IRA or add funds from other sources, the qualified plan into which you move funds will not be eligible for any optional tax treatment for which it might have otherwise qualified.

Property and cash received in a distribution. If you receive both property and cash in an eligible rollover distribution, you can roll over part or all of the property, part or all of the cash, or any combination of the two that you choose.

The same property (or sales proceeds) must be rolled over. If you receive property in an eligible rollover distribution from a qualified retirement plan, you cannot keep the property and contribute cash to a traditional IRA in place of the property. You must either roll over the property or sell it and roll over the proceeds, as explained next.

Sale of property received in a distribution from a qualified plan. Instead of rolling over a distribution of property other than cash, you can sell all or part of the property and roll over the amount you receive from the sale (the proceeds) into a traditional IRA. You cannot keep the property and substitute your own funds for property you received.

Example. You receive a total distribution from your employer's plan consisting of $10,000 cash and $15,000 worth of property. You decide to keep the property. You can roll over to a traditional IRA the $10,000 cash received, but you cannot roll over an additional $15,000 representing the value of the property you choose not to sell.

Treatment of gain or loss. If you sell the distributed property and roll over all the proceeds into a traditional IRA, no gain or loss is recognized. The sale proceeds (including any increase in value) are treated as part of the distribution and are not included in your gross income.

Example. On September 6, Mike received a lump-sum distribution from his employer's retirement plan of $50,000 in cash and $50,000 in stock. The stock was not stock of his employer. On September 24, he sold the stock for $60,000. On October 6, he rolled over $110,000 in cash ($50,000 from the original distribution and $60,000 from the sale of stock). Mike does not include the $10,000 gain from the sale of stock as part of his income because he rolled over the entire amount into a traditional IRA.

Note. Special rules may apply to distributions of employer securities. For more information, see Figuring the Taxable Amount under Taxation of Nonperiodic Payments in Publication 575.

Partial rollover. If you received both cash and property, or just property, but did not roll over the entire distribution, see Rollovers in Publication 575.

Life insurance contract. You cannot roll over a life insurance contract from a qualified plan into a traditional IRA.

Distributions received by a surviving spouse. If you receive an eligible rollover distribution (defined earlier) from your deceased spouse's eligible retirement plan (defined earlier), you can roll over part or all of it into a traditional IRA. You can also roll over all or any part of a distribution of deductible employee contributions (DECs).

Distributions under divorce or similar proceedings (alternate payees). If you are the spouse or former spouse of an employee and you receive a distribution from a qualified retirement plan as a result of divorce or similar proceedings, you may be able to roll over all or part of it into a traditional IRA. To qualify, the distribution must be:

A domestic relations order is a judgment, decree, or order (including approval of a property settlement agreement) that is issued under the domestic relations law of a state. A "qualified domestic relations order" gives to an alternate payee (a spouse, former spouse, child, or dependent of a participant in a retirement plan) the right to receive all or part of the benefits that would be payable to a participant under the plan. The order requires certain specific information, and it cannot alter the amount or form of the benefits of the plan.

Tax treatment if all of an eligible distribution is not rolled over. Any part of an eligible rollover distribution that you keep is taxable in the year you receive it. If you do not roll over any of it, special rules for lump-sum distributions may apply. See Lump-Sum Distributions under Taxation of Nonperiodic Payments in Publication 575. The 10% additional tax on early distributions, discussed later under What Acts Result in Penalties or Additional Taxes, does not apply.

Keogh plans and rollovers. If you are self-employed, you are generally treated as an employee for rollover purposes. Consequently, if you receive an eligible rollover distribution from a Keogh plan (a qualified plan with at least one self-employed participant), you can roll over all or part of the distribution (including a lump-sum distribution) into a traditional IRA. For information on lump-sum distributions, see Lump-Sum Distributions under Taxation of Nonperiodic Payments in Publication 575.

More information. For more information about Keogh plans, see chapter 4 of Publication 560.

Distribution from a tax-sheltered annuity. If you receive an eligible rollover distribution from a tax-sheltered annuity plan (section 403(b) plan), you can roll it over into a traditional IRA.

Receipt of property other than money. If you receive property other than money, you can sell the property and roll over the proceeds as discussed earlier.

Rollover from bond purchase plan. If you redeem retirement bonds that were distributed to you under a qualified bond purchase plan, you can roll over tax free into a traditional IRA the part of the amount you receive that is more than your basis in the retirement bonds.

Reporting rollovers from employer plans. Enter the total distribution (before income tax or other deductions were withheld) on Form 1040A, line 12a; or Form 1040NR, line 17a. This amount should be shown in box 1 of Form 1099-R. From this amount, subtract any contributions (usually shown in box 5 of Form 1099-R) that were taxable to you when made. From that result, subtract the amount that was rolled over either directly or within 60 days of receiving the distribution. Enter the remaining amount, even if zero, on Form 1040, line 16b; Form 1040A, line 12b; or Form 1040NR, line 17b. Also, enter "Rollover" next to line 16b on Form 1040; line 12b of Form 1040A; or line 17b of Form 1040NR.

Rollover of Exxon Valdez Settlement Income

If you are a qualified taxpayer (defined next) and you received qualified settlement income (defined below), you can contribute all or part of the amount received to an eligible retirement plan which includes a traditional IRA. The amount contributed cannot exceed $100,000 (reduced by the amount of qualified settlement income contributed to an eligible retirement plan in prior tax years) or the amount of qualified settlement income received during the tax year. Contributions for the year can be made until the due date for filing your return, not including extensions.

Qualified settlement income that you contribute to a traditional IRA will be treated as having been rolled over in a direct trustee-to-trustee transfer within 60 days of the distribution. The amount contributed is not included in your income at the time of the contributions and is not considered to be investment in the contract. Also, the 1-year waiting period between rollovers does not apply.

Qualified taxpayer. You are a qualified taxpayer if you are:

Qualified settlement income is any interest and punitive damage awards which are:

Qualified settlement income can be received as periodic payments or as a lump sum. See

in

, Taxable and Nontaxable Income, for information on how to report qualified settlement income.

Transfers Incident To Divorce

If an interest in a traditional IRA is transferred from your spouse or former spouse to you by a divorce or separate maintenance decree or a written document related to such a decree, the interest in the IRA, starting from the date of the transfer, is treated as your IRA. The transfer is tax free. For information about transfers of interests in employer plans, see Distributions under divorce or similar proceedings (alternate payees) under Rollover From Employer's Plan Into an IRA, earlier.

Transfer methods. There are two commonly used methods of transferring IRA assets to a spouse or former spouse. The methods are:

If all the assets are to be transferred, you can make the transfer by changing the name on the IRA from your name to the name of your spouse or former spouse.

Direct transfer. Under this method, you direct the trustee of the traditional IRA to transfer the affected assets directly to the trustee of a new or existing traditional IRA set up in the name of your spouse or former spouse.

If your spouse or former spouse is allowed to keep his or her portion of the IRA assets in your existing IRA, you can direct the trustee to transfer the assets you are permitted to keep directly to a new or existing traditional IRA set up in your name. The name on the IRA containing your spouse's or former spouse's portion of the assets would then be changed to show his or her ownership.

CAUTION: If the transfer results in a change in the basis of the traditional IRA of either spouse, both spouses must file Form 8606 and follow the directions in the instructions for that form.

Converting From Any Traditional IRA Into a Roth IRA

Allowable conversions. You can withdraw all or part of the assets from a traditional IRA and reinvest them (within 60 days) in a Roth IRA. The amount that you withdraw and timely contribute (convert) to the Roth IRA is called a conversion contribution. If properly (and timely) rolled over, the 10% additional tax on early distributions will not apply. However, a part or all of the distribution from your traditional IRA may be included in gross income and subjected to ordinary income tax.

You must roll over into the Roth IRA the same property you received from the traditional IRA. You can roll over part of the withdrawal into a Roth IRA and keep the rest of it. The amount you keep will generally be taxable (except for the part that is a return of nondeductible contributions) and may be subject to the 10% additional tax on early distributions. See When Can You Withdraw or Use Assets, later, for more information on distributions from traditional IRAs and Early Distributions, later, for more information on the tax on early distributions.

Periodic distributions. If you started taking substantially equal periodic payments from a traditional IRA, you can convert the amounts in the traditional IRA to a Roth IRA and then continue the periodic payments. The 10% additional tax on early distributions will not apply even if the distributions are not qualified distributions (as long as they are part of a series of substantially equal periodic payments).

Required distributions. You cannot convert amounts that must be distributed from your traditional IRA for a particular year (including the calendar year in which you reach age 70 1/2) under the required distribution rules (discussed later in this chapter).

Income. You must include in your gross income distributions from a traditional IRA that you would have had to include in income if you had not converted them into a Roth IRA. These amounts are normally included in income on your return for the year that you converted them from a traditional IRA to a Roth IRA.

You do not include in gross income any part of a distribution from a traditional IRA that is a return of your basis, as discussed under Are Distributions Taxable, later in this chapter.

CAUTION: If you must include any amount in your gross income, you may have to increase your withholding or make estimated tax payments. See Publication 505, Tax Withholding and Estimated Tax.

Recharacterizations

You may be able to treat a contribution made to one type of IRA as having been made to a different type of IRA. This is called recharacterizing the contribution.

To recharacterize a contribution, you generally must have the contribution transferred from the first IRA (the one to which it was made) to the second IRA in a trustee-to-trustee transfer. If the transfer is made by the due date (including extensions) for your tax return for the tax year during which the contribution was made, you can elect to treat the contribution as having been originally made to the second IRA instead of to the first IRA. If you recharacterize your contribution, you must do all three of the following.

You cannot deduct the contribution to the first IRA. Any net income you transfer with the recharacterized contribution is treated as earned in the second IRA. The contribution will not be treated as having been made to the second IRA to the extent any deduction was allowed for the contribution to the first IRA.

Conversion by rollover from traditional to Roth IRA. For recharacterization purposes, if you receive a distribution from a traditional IRA in one tax year and roll it over into a Roth IRA in the next year, but still within 60 days of the distribution from the traditional IRA, treat it as a contribution to the Roth IRA in the year of the distribution from the traditional IRA.

Effect of previous tax-free transfers. If an amount has been moved from one IRA to another in a tax-free transfer, such as a rollover, you generally cannot recharacterize the amount that was transferred. However, see Traditional IRA mistakenly moved to SIMPLE IRA below.

Recharacterizing to a SEP IRA or SIMPLE IRA. Roth IRA conversion contributions from a SEP IRA or SIMPLE IRA can be recharacterized to a SEP IRA or SIMPLE IRA (including the original SEP IRA or SIMPLE IRA).

Traditional IRA mistakenly moved to SIMPLE IRA. If you mistakenly roll over or transfer an amount from a traditional IRA to a SIMPLE IRA, you can later recharacterize the amount as a contribution to another traditional IRA.

Recharacterizing excess contributions. You can recharacterize only actual contributions. If you are applying excess contributions for prior years as current contributions, you can recharacterize them only if the recharacterization would still be timely with respect to the tax year for which the applied contributions were actually made.

Example. You contributed more than you were entitled to in 2013. You cannot recharacterize the excess contributions you made in 2013 after April 15, 2014, because contributions after that date are no longer timely for 2013.

Recharacterizing employer contributions. You cannot recharacterize employer contributions (including elective deferrals) under a SEP or SIMPLE plan as contributions to another IRA. SEPs are discussed in chapter 2 of Publication 560. SIMPLE plans are discussed in chapter 3.

Worksheet 1-3. Determining the Amount of Net Income Due To an IRA Contribution and Total Amount To Be Recharacterized

 Keep for Your Records

 ----------------------------------------------------------------------

1.

 Enter the amount of your IRA contribution for 2014 to be

    recharacterized                                          

1.

 ______

2.

 Enter the fair market value of the IRA immediately prior

    to the recharacterization (include any distributions,

    transfers, or recharacterization made while the

    contribution was in the account)                          

2.

 ______

3.

 Enter the fair market value of the IRA immediately prior

    to the time the contribution being recharacterized was

    made, including the amount of such contribution and any

    other contributions, transfers, or recharacterizations

    made while the contribution was in the account            

3.

 ______

4.

 Subtract line 3 from line 2                              

4.

 ______

5.

 Divide line 4 by line 3. Enter the result as a decimal

    (rounded to at least three places)                        

5.

 ______

6.

 Multiply line 1 by line 5. This is the net income

    attributable to the contribution to be recharacterized    

6.

 ______

7.

 Add lines 1 and 6. This is the amount of the IRA

    contribution plus the net income attributable to it to

    be recharacterized                                        

7.

 ______

 ----------------------------------------------------------------------

The recharacterization of a contribution is not treated as a rollover for purposes of the 1-year waiting period described earlier in this chapter under

This is true even if the contribution would have been treated as a rollover contribution by the second IRA if it had been made directly to the second IRA rather than as a result of a recharacterization of a contribution to the first IRA.

Reconversions

You cannot convert and reconvert an amount during the same tax year or, if later, during the 30-day period following a recharacterization. If you reconvert during either of these periods, it will be a failed conversion.

Example. If you convert an amount from a traditional IRA to a Roth IRA and then transfer that amount back to a traditional IRA in a recharacterization in the same year, you may not reconvert that amount from the traditional IRA to a Roth IRA before:

To recharacterize a contribution, you must notify both the trustee of the first IRA (the one to which the contribution was actually made) and the trustee of the second IRA (the one to which the contribution is being moved) that you have elected to treat the contribution as having been made to the second IRA rather than the first. You must make the notifications by the date of the transfer. Only one notification is required if both IRAs are maintained by the same trustee. The notification(s) must include all of the following information.

In most cases, the net income you must transfer is determined by your IRA trustee or custodian. If you need to determine the applicable net income on IRA contributions made after 2013 that are recharacterized, use Worksheet 1-3 above. See Regulations section

In most cases, the net income you must withdraw is determined by the IRA trustee or custodian. If you need to determine the applicable net income on IRA contributions made after 2013 that are returned to you, use Worksheet 1-4 above. See Regulations section  Keep for Your Records

Distributions from individual retirement annuities. If your traditional IRA is an individual retirement annuity, special rules apply to figuring the required minimum distribution. For more information on rules for annuities, see Regulations section

• The beneficiary is the surviving spouse.

• The beneficiary is an individual (other than the surviving spouse).