A regulation relating to IRA rollovers stipulating that whenever a financial asset is withdrawn from a retirement account or IRA , it must be rolled over into the same property of an IRA. Unless the party involved is over 59.5 years of age, failure to comply with this rule will result in the IRS taxing the withdrawn asset as ordinary income.
Suppose George, a 50-year-old male, decided to buy some shares with money from his IRA account. After, he decides to place the shares in a new IRA in order to defer taxes. Since his withdrawal asset changed properties during the rollover and he is under 59.5, he will end up owing tax on the withdrawn amount at a rate that equals his normal income tax rate and also incur a 10% penalty.
