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Update on IRA Rollovers (from JM Consulting)

You may recall that recently we reported that the decision in US Tax Court, Bobrow vs. Commissioner, changed 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.

In what can be considered somewhat of a surprise, the IRS, in IRS Announcement 2014-15, has stated that they will abide by the US Tax Court decision and NOT challenge the court’s interpretation or seek to further clarify the Regulation. They plan on changing all of their articles, notices and publications so that it will be clear that individuals will be allowed ONLY ONE IRA ROLLOVER per year, regardless of how many IRAs they own. And that means 365/366 days, not tax year or calendar year.

However, in an unusual show of understanding of problems this change will cause, they do not intend to apply this new interpretation until 2015! The Treasury intends to issue a proposed regulation that would clarify the change and provide that it would be effective for IRA distributions taken after December 31, 2014.

CAUTION: If you have already made two IRA-to-IRA rollovers in 2014, there is really nothing you need to do. However, before making a second IRA-to-IRA rollovers in 2014 it might be best to discuss this with your tax counsel. While the IRS states they will not make it effective until 2015, the Tax Court has NOT stated that. Should you get into tax court, even if on another matter, any rollover after the first could be deemed invalid with tax and likely penalties due.

REMEMBER: There are no limitations on how many IRA-to-IRA direct transfers you can have. BEFORE planning any rollover, it is probably a good idea to review it with your tax counsel and your IRA Custodian/Trustee to see if the Direct Transfer method may not be a better avenue to pursue. However, Direct Transfers must be administered correctly.

IMPORTANT: This new rule interpretation DOES NOT apply to Qualified Retirement Plan (QRP)-to-IRA rollovers. So for your QRPs, like 401(k)s, you are still able to have as many QRP-to-IRA rollovers as you want. QRP-to-QRP rollovers are also NOT affected.

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.