New Rules for IRA Rollovers in 2015

Only one IRA rollover per year will be allowed, regardless of how many IRAs you own--a new IRS limitation.

A “rollover” sounds like a bad auto accident. But in the world of IRAs (individual retirement accounts), a rollover occurs when you withdraw money from an IRA account you own, receive a check from your IRA custodian, and put the money into another IRA, or even back into the same IRA at a later date. Ordinarily, when you take money out of an IRA you have to pay income tax on it, but no tax is imposed on rollovers that comply with strict IRS rules.

These IRS rules provide that if you take a distribution from an IRA with the intent of rolling it into a different IRA (or back into the same IRA), you have 60 days from the time you receive the distribution to deposit it into the new (or old) IRA. If you make the deadline, the distribution is tax free. If you miss the deadline, you will owe income tax, and perhaps penalties, on the distribution.

IRA holders often make rollovers to give themselves short-term loans—that is, they take money out of an IRA, use it for up to 60 days, and then deposit the same amount into a new IRA (or back into the old IRA). Prior to 2015, the rule the IRS followed was that you could do one such rollover per year for each IRA that you own. Thus, for example, if you had three IRAs, you could make one rollover for each IRA during a one-year period, for a total of three rollovers during any 365-day period.

Starting January 1, 2015, the IRS will only allow taxpayers to do one rollover per year, no matter how many IRAs the person has. This rule was first adopted in a tax court case (Bobrow v. Comm’r, T.C. Memo. 2014-21). Thus, a person with two or more IRAs will be restricted to doing one rollover for all the IRAs he or she owns during any 365-day period. (IRS Announcement 2014-15.) Note that the 365 day period is not determined on a calendar-year basis. Instead, it starts when an IRA owner receives the distribution.

This rule only applies to distributions where the IRA holder receives a check from the IRA custodian. It does not apply to transfers that go directly from one IRA custodian to another. There is no limit on the number of such transfers that can be made each year. So, if you want to transfer money from one IRA to another, you should instruct your IRA custodian to directly transfer it to the new IRA, without you actually receiving the money.

The IRS has announced a special transition rule for 2014 to help IRA owners get used to the new rule. Under this transition rule, any 60-day rollovers from one IRA account to another made during 2014 will not count during 2015 for any other IRAs owned by the same individual. In other words, the new one-rollover-per-year-rule, which takes into account all distributions and rollovers among an individual’s IRAs, will apply to distributions from different IRAs only if each of the distributions occurs after 2014. (IRS Announcement 2014-32.) This means that you can take money out of an IRA in late 2014 and roll it over to another or same IRA in 2015 and there will be no tax consequences as long as it's done within 60 days. Moreover, the rollover won't prevent a rollover from a different IRA during 2015.

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