IRS Clarifies IRA Rollover Rule
Friday, November 14, 2014
The Internal Revenue Service (IRS) has issued guidance clarifying the impact a
rollover from one Individual Retirement Arrangement (IRA) to another has on
the one-per-year limit on tax-free rollovers, after a policy change following
a January 2014 decision from the United States Tax Court.
The change from the IRS, announced earlier this year, reflects the Tax Court's decision to preclude
an individual from making more than one tax-free rollover in any one-year period,
even if the rollovers involve different IRAs.
To help taxpayers by allowing time for transition to the new interpretation,
the IRS has announced that it will not apply before January
1, 2015. Before 2015, the one-per-year limit applies only on an IRA-by-IRA basis (that
is, only to rollovers involving the same IRAs). Beginning in 2015, the limit
will apply by aggregating all of an individual's IRAs, effectively treating them
as if they were one IRA for the purposes of applying the limit.
Although an eligible IRA distribution received on or after January 1, 2015,
and properly rolled over to another IRA will still get tax-free treatment,
subsequent distributions from any of the individual's IRAs (including traditional
and Roth IRAs) received within one year after that distribution will not get
tax-free rollover treatment.
The IRS confirmed that, as before, Roth conversions (rollovers from traditional
IRAs to Roth IRAs), rollovers between qualified plans and IRAs, and trustee-to-trustee
transfers (direct transfers of assets from one IRA trustee to another) are not subject to the one-per-year limit and are disregarded in applying
the limit to other rollovers.
IRA trustees have been encouraged by the IRS to offer IRA owners who request a distribution for
rollover the option of a trustee-to-trustee transfer from one IRA to another
IRA. IRA trustees can accomplish a trustee-to-trustee transfer by transferring
amounts directly from one IRA to another or by providing the IRA owner with
a check made payable to the receiving IRA trustee.