In 2014, the Tax Court in the Bobrow case ruled that the once-per-year rollover rule applies to all of an individual’s IRAs, not to each of their IRA accounts separately. The Court’s surprising ruling conflicted with a long-standing IRS position in earlier editions of IRS Publication 590 and in private letter rulings. Several years have now passed since this ruling, but there is still a lot of confusion out there about the stricter interpretation of the once-per-year rule. Here are 7 things you need to know to know about this rule that has tripped up many taxpayers.
- The once-per-year rule applies in aggregate to IRAs and Roth IRAs.If you have both types of IRAs you are still limited to just one 60-day rollover in a twelve-month period. Your twelve-month period starts with the date you received the funds that you rolled over.
- The rule does not apply on a calendar basis.A new calendar year does not mean a fresh start for purposes of the once-per-year rollover rule. If you roll over a distribution received in December of 2017, you cannot roll over another distribution in January of 2018. Instead, you must wait until December of 2018.
- The rule does not apply to Roth conversions.Did you just roll over your traditional IRA two months ago? No worries. You can still go ahead and convert.
- The rule also does not apply to rollovers from employer plans to IRAs or rollovers from IRAs to employer plans.The rule only applies when you are going from one IRA to another IRA of the same type in a 60-day rollover. A rollover from your employer plan to your IRA will not prevent you from doing a rollover of your IRA funds a month later.
- Direct transfers avoid the rule.Looking to move your IRA funds? Consider a trustee-to-trustee transfer instead of a 60-day rollover. What’s the difference? Instead of receiving a distribution from your IRA and rolling it over in 60 days, with a transfer your IRA funds move directly from one IRA trustee to another. There are no limits on how many transfers you can do. The pesky once-per-year rollover rule never applies to transfers!
- Checks made out to a receiving IRA qualify as trustee-to-trustee transfers. Having trouble getting your IRA custodian to do a trustee to trustee transfer? Try asking for a check made payable to the receiving IRA. Even if you get the check, it is still considered a transfer and avoids the hassle of the once-per-year rollover rule.
- Violating the once-per-year rule has serious consequences.Don’t mess around with the once-per-year rollover rule. The consequences are too severe. When this rule is violated, the funds are considered distributed and may be taxable and subject to penalty. If they are improperly deposited to an IRA, there may be excess contribution penalties. Retirement savings will be lost forever and the IRS and the courts cannot help. Know the rule and be careful to follow it.
By Sarah Brenner, JD, IRA Analyst
Gregory Ricks & Associates is a Registered Investment Advisor. We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk, including the complete loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
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