New Rules for IRA Rollovers
The Briefly Noted column in the April 2014 AAII Journal discussed a tax court ruling affecting individual retirement account Be Aware of IRA Rollover Rules”). As a recap, Alvan and Elisa Bobrow moved money in and out of three IRAs between April and September 2008. The Internal Revenue Service , which currently allows one rollover per IRA account per year, said the Bobrows violated the rollover rules with their actions.rollovers (“
The rollover rules allow you to withdraw funds from a IRA on a tax-free basis and deposit them into another IRA as long as you do so within a 60-day window. Patrick Gutierrez, a specialist in employee plans at the IRS, told us some people try to take advantage of the window to get what is in effect a tax-free, temporary loan.
The tax court not only ruled in favor of the IRS and against the Bobrows, but further said the tax code limits aggregate IRA rollovers to one per 12-month period. Just after the April AAII Journal went to press, the IRS issued a new bulletin saying that in light of Bobrow v. Commissioner, aggregate IRA rollovers will be limited to one per person per year. The new rule will apply regardless of how many retirement savings accounts a person owns. The tax agency’s current intention is to have the rule take effect on January 1, 2015. Look for the new rule in the 2015 edition of IRS Publication 590, unless there is a delay.
The new rollover rule will not apply to trustee-to-trustee transfers. Both Sally Schreiber, the senior tax editor at the Journal of Accountancy, and Mark Luscombe, a principal analyst at CCH Tax & Accounting, confirmed that this means you can move your IRA accounts between brokers as many times as you would like over the course of a 12-month period. The key is that you move the actual account, and don’t move funds from one IRA to another. (If that sounds like a technicality, realize it is a big one.)
The new rule will not impact 401(k) plan rollovers or Roth IRA conversions. Gutierrez told us that a different part of the tax code covers 401(k) rollovers. Barbara Weltman at J.K. Lasser said Roth IRA conversions receive different tax treatment than IRA rollovers. She wrote, “The point of rollovers is to avoid tax, while conversions are taxable.”
Source: “Application of One-Per-Year Limit on IRA Rollovers,” IRS Announcement 2014-15; “New Tax Rules for IRAs and Bitcoin,” AAII Investor Update, March 27, 2014.