August, 2014

Recently, the IRS has announced a new rule that limits the number of individual retirement account (IRA) rollovers that an individual may complete during any 12-month period.

One method used by individuals to transfer funds tax-free between two IRAs is by taking a distribution from one IRA and then depositing the distributed amount into a second IRA within 60 days (a “rollover”). However, the tax law states that individuals are allowed to complete only one rollover per year.

The long-standing interpretation by the IRS was that this one rollover per year rule applied to each IRA individually, rather than to all of an individual’s IRAs collectively. In other words, an individual could complete any number of rollovers in a 12-month period, as long as no single IRA was used more than once. 

Using an IRS example, assume you have two traditional IRAs, IRA-1 and IRA-2. You take a distribution from IRA-1 and within 60 days roll it over into your new traditional IRA-3. Under the “old” rule, you could not make another tax-free 60-day rollover from IRA-1 (or IRA-3) within one year from the date of your distribution. But you could still make a tax-free rollover from IRA-2 to any other traditional IRA.

However, a recent Tax Court case, Bobrow v Commissioner, concluded that the IRS’s interpretation was incorrect and that the limitation applies on an aggregate basis. This means regardless of how many IRAs an individual taxpayer maintains, that individual can make only one tax-free 60-day rollover within each 12-month period.

The IRS has announced that it will follow the Bobrow v Commissioner case beginning in 2015 and that this new rule will not apply to any rollover that involves a distribution occurring before January 1, 2015. For the rest of 2014 the "old" one-rollover-per-year rule will apply to any IRA distributions you receive.

Keep in mind that taxpayers will continue to have the ability to have IRA funds transferred directly from one IRA trustee to another IRA trustee tax-free without restriction. Trustee-to-trustee transfers are not subject to the one IRA rollover per year rule and generally is the safer method to use when transferring funds from one IRA to another IRA.

If you would like to discuss the new one-rollover-per-year rule in more detail, I am available to answer any questions you may have. Please call me today at (585) 419-0670, ext. 50606 or [email protected].

^{Source: Newkirk and ©2014 Broadridge Investor Communication Solutions, Inc. All rights reserved. This material provided by Mark Mazzochetti, CISP.}