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Confusion with IRA Rollover Rule

The recent decision in US Tax Court, Bobrow vs. Commissioner, seems to change the availability of having one IRA rollover per year, PER IRA, INSTEAD limiting it to one IRA rollover PER PERSON, PER YEAR…period! The confusion comes from the Internal Revenue Code (IRC) itself and the interpretation that the IRS has used for years.

IRC Section 408(b)(3)(B) states the following:

408(b)(3)(B) Limitation

This paragraph does not apply to any amount described in subparagraph (A)(i) received by an individual from an individual retirement account or individual retirement annuity if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in that subparagraph from an individual retirement account or an individual retirement annuity which was not includible in his gross income because of the application of this paragraph. (Emphasis added) 

If you note the highlighted text above, the IRC is not real clear. The Tax Court interprets this to mean a rolled over distribution from an IRA, ANY IRA, not just the same IRA, must be limited to one per year, per person.

The IRS has still NOT clarified this because their instructions still state one rollover per year, PER IRA.

So what is the IRA Owner to do? First, whenever possible you should use an IRA Transfer, a direct transfer of IRA assets to another IRA. Discuss this with your IRA Custodian/Trustee to clarify the important differences between rollovers and transfers, because there are no limitations on the number of IRA Transfers you can use.

If you must use the rollover method, discuss this with your own legal and tax counsel BEFORE doing anything. This is a big issue and the IRS will certainly be clarifying this in the near future.

Terry White

About Terry White

I started my business career after getting my degree in Accounting from the University of New Mexico in 1983. My first job was as a controller for a local title company, and in 1987 I started First Financial Escrow, Inc. Over the years I played a part in several startup companies including First Financial Equities, Inc., First Financial Trust, Inc., First Financial Marketing, Inc. and Asset Ventures, Inc. In 1997 First Financial Escrow, Inc. was able to purchase the escrow accounts from Sunwest Bank and changed its name to Sunwest Escrow. As the market changes, Sunwest has grown and changed along with it. Besides my wife, Sheila, we have three boys, two daughters-in-law, one grandson, another grandson on the way and a future daughter-in-law. Sunwest is my passion, and I enjoy coming to work every day to see what will happen next. I enjoy fly fishing, spending time in Colorado, biking and watching my boys play soccer.