Don’t Forget: 60 Day IRA Rollover Rule Has Changed
Beginning in 2015, taxpayers can only make one 60-day “indirect” IRA-to-IRA rollover per 12-month period (not based on a calendar year) regardless of the number of IRAs that you own. Prior to 2015, many taxpayers followed Proposed Treasury Regulation Section 1.408-4(b)(4)(ii), published in 1981, and IRS Publication 590-A (“Contributions to Individual Retirement Arrangements (IRAs)”) which interpreted the limitation of one 60-day IRA rollover per 12-month period as applying on an IRA-by-IRA basis, meaning that a rollover from one IRA to another would not affect a rollover involving other IRAs of the same individual. However, a tax court case in 2014 trumped these interpretations by ruling that you could not make a non-taxable 60-day (“indirect”) rollover from one IRA to another if you had already made a similar rollover from any of your IRAs in the preceding 12-month period (Bobrow v. Commissioner, T.C. Memo 2014-21). As a result of this Tax Court ruling, followed up by guidance from the IRS in Announcement 2014-32 (issued on November 10, 2014), it is now crystal clear that the new rule applies in the aggregate to all IRAs.
“Direct” IRA-to-IRA Transfer Exception
This change in the IRA Rollover rules will not apply to your ability to transfer funds “directly” from one IRA trustee to another, because this type of “direct” transfer is not considered a rollover under Revenue Ruling 78-406, 1978-2 C.B. 157). The one-rollover-per-12 month period rule only applies to rollovers. This is why the “direct” trustee-to-trustee transfer from one IRA to another is the preferred method of choice by financial advisers. There is no limit on the number of “direct” trustee-to-trustee IRA transfers that can be made each year. Therefore, in order to avoid the trap imposed by this new rule, you should instruct your current IRA trustee to directly transfer your current IRA to another IRA, without you actually receiving the money. In essence, the check should never be made payable to you but should be made payable to the trustee of the receiving IRA. The IRS has clarified that a check made payable from one IRA custodian to another IRA custodian will count as a direct transfer even if the check is mailed to you (i.e., “in your hands”).
Rollover from a Traditional IRA to a Roth IRA (“Conversion”) Exception
While the new rule applies to “indirect” rollovers between two traditional IRAs and between two Roth IRAs, it does not apply to rollovers from a traditional IRA to a Roth IRA. Therefore, you can still make an unlimited amount of “Roth Conversions”.
Rollover from a Qualified Retirement Plan to an IRA Exception
The new rule also does not apply to a rollover from a qualified retirement plan (i.e., 401(k) plan) to an IRA. Therefore, you can still make an unlimited amount of these types of rollovers during a 12-month period.
Nest Steps if You Have Questions on Rollover of an IRA Account
If you have any questions on how to handle the rollover of an IRA account, a Roth IRA account, or a qualified retirement plan to an IRA account, please contact your financial adviser before they initiate the rollover. If you make a mistake regarding this new 60-day rollover rule on “indirect” rollovers, you cannot reverse your error and the mistake can be very costly. Therefore, it is best to seek professional advice before you attempt the rollover.