IRA Rollovers

04/30/2014

The Tax Court recently ruled that an owner of multiple IRA's cannot have more then one tax-free rollover annually.

The decision by the Tax Court is inconsistent with prior IRS interpretations.  Prior to the Tax Court ruling, the IRS has traditionally taken the position that  IRA distributions will not be included in the gross income of the account owner as long as the amount is paid into an IRA for the benefit of the account owner within 60 days from receipt of distribution. Transferring or reinvesting funds from one IRA account to another, according to the terms above, will constitute as a rollover.

The Tax Court case involved an individual satisfying the 60-day limit for reinvestment for two separate IRAs. Although the deadlines were met, the IRS will not permit both rollovers even though they involved separate retirement accounts. In response to this case, the IRS made Announcement 2014-15  which “provides transition relief for owners of IRAs” as owners adapt to the one-rollover-per-year limit. What relief can retirement account holders expect?

  • Time. Trustees have until January 1, 2015 to make amendments to their IRA rollover processes and disclosures. With the new rollover limits less than a year away, consult a tax attorney before making rollovers.
  • Trustee transfers. The one-rollover-per year will not apply to trustee-to-trustee transfers. This allows the IRA account owner to make unlimited direct transfers to trustees since transfers are not recognized as rollovers.
  • Take rollovers. Since the changes will not be effective prior to January 1, 2015 – account owners can enjoy multiple tax-free rollovers in the 2014 tax year for the last time.