15,000 Reasons to Talk to a Tax Adviser BEFORE Making a Big Move

[Paul Allen]

Nice lady came to see me yesterday. 73 years old. In March 2016 she moved $30,000 from her IRA to her checking account and then a few days later she moved it to another IRA. An indirect rollover. That went so well she decided to move another $40,000 from her IRA to her checking account and then into her new IRA in July. 

The problem is taxpayers are only allowed to make one indirect rollover per year. The IRS has disallowed her second rollover. She has to remove the $40,000 from her IRA and declare it as income. This elevated her AGI to such a level that 85% of her Social Security is also taxable now. Between federal and state she owes more than $15,000 in taxes.

She had no idea about this new rule, of course. She also didn't know there was a way to accomplish what she wanted accomplished that would not have been taxable (trustee-to-trustee transfer).

What you don't know about taxes can end up costing you a lot.