New Once-Per-Year Rule On IRA Rollovers Looms
Beginning January 1, 2015, IRA owners will be limited to one IRA rollover per year under a new Internal Revenue Service rule. The IRS issued the rule in response to a recent US Tax Court decision which held that multiple rollovers between different IRAs owned by the same taxpayer violated the Internal Revenue Code. The new rule will be applied prospectively and will impact taxpayers owning more than one traditional IRA or Roth IRA.
Under the new IRS rule, an individual receiving an IRA distribution on or after January 1, 2015, cannot roll over any portion of the distribution into an IRA if the individual has received a distribution from any IRA (whether a traditional IRA or Roth IRA) in the preceding 1-year period that was rolled over into an IRA. The new aggregation rule, which takes into account all distributions and rollovers among an individual’s traditional and Roth IRAs, will apply to distributions from different IRAs only if each of the distributions occurs after 2014. This creates a special transitional safe harbor for those taxpayers who received a distribution from an IRA in 2014 and properly rolled it over into another IRA. Such a rollover will be disregarded for purposes of whether a 2015 distribution can be rolled over, provided that the 2015 distribution is from a different IRA that neither made nor received the 2014 distribution. This gives IRA owners a fresh start in 2015 when applying the one-per-year rollover limit to multiple IRAs.
A conversion from a traditional IRA to a Roth IRA is not subject to the aggregation rule, and such a rollover is disregarded in applying the one rollover per year limitation to other rollovers. Note, however, that a rollover between an individual’s Roth IRAs would preclude a separate rollover within the 1-year period between the individual’s traditional IRAs, and vice versa.
The one-per-year rollover limitation does not apply to a rollover to or from a qualified plan [such as a 401(k) or 403(b)] (and such a rollover is disregarded in applying the one-per-year rollover limitation to other rollovers). More importantly, it does not apply to direct trustee-to-trustee transfers.
This rule will certainly encourage taxpayers to make direct trustee-to-trustee transfers when moving money between IRA accounts. Trustee-to-trustee transfers expressly avoid the new rollover aggregation rule.
The rules governing distributions from IRAs and other retirement accounts are very complex, and very tricky. Even seemingly simple transactions involving an IRA or other retirement account can result in disastrous tax consequences. And the Internal Revenue Code is extremely unforgiving. Consult your CPA or other tax adviser, or give me a call. I can help.
