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Important Information Regarding IRA Rollovers

Important Information Regarding IRA Rollovers

October 8, 2014  |  BY BRENT MCLAREN

Earlier this year the U.S. Tax Court held that an individual cannot make a non-taxable rollover from one individual retirement account (IRA) to another IRA if the individual already had a rollover from any IRA in the preceding 1-year period (Bobrow v. Commissioner, T. C. Memo. 2014-21). As of this writing, the IRS has indicated it will follow the U.S. Tax Court’s interpretation with implementation as early as January 1, 2015. This means (after IRS implementation) any additional rollovers made within a year of another rollover would result in the previously untaxed IRA amounts being included in gross income and the potential for the 10% early withdrawal penalty on the amount included in gross income. Also, if these amounts are put back into the same or a different IRA they may be considered excess contributions and would be taxed at 6% per year as long as they remain in the IRA.

On the surface, this ruling sounds alarming for many individuals who engage in multiple rollovers during a 12-month period. However, the IRS interprets a rollover transaction differently than many people think of the term. For the one-year limit, the IRS defines a rollover as a transaction where the funds are sent to the IRA owner and then the funds are rolled into an IRA within 60-days. This means the rule does not apply for many of the transactions we sometimes referred to as rollovers in general terms.

Per the IRS website at http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Rollovers-of-Retirement-Plan-and-IRA-Distributions, “The one-per year limit does not apply to:

•  rollovers from traditional IRAs to Roth IRAs (conversions)

•  trustee-to-trustee transfers to another IRA

•  IRA-to-plan rollovers

•  plan-to-IRA rollovers

•  plan-to-plan rollovers”

Any future transactions involving money moving between qualified plans and/or IRAs should be carefully examined in advance to avoid any potential taxes and/or penalties from this new interpretation after the IRS implementation date (as early as January 1, 2015).


BRENT MCLAREN, MBA, CPA, FLMI, AAPA

Senior Accountant, Davis Life & Annuity

800.747.5612

Brent@davislife.com

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