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Significant changes announced to IRA rollover rules

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The IRS announced changes to the rollover rules relating to Individual Retirement Accounts (IRAs) as a result of a recent Tax Court case (Bobrow v. Commissioner).

Prior to the Court’s decision, an individual could take cash distributions from multiple IRAs and obtain tax free rollover treatment so long as the funds were rolled over to a new account within 60 days.  For example, funds could be withdrawn from an IRA held at Institution A then deposited in a new IRA at Institution B within 60 days, to be followed by a similar withdrawal from Institution C and deposit to Institution D.

This could be done multiple times within a twelve month period, so long as the same funds were not moved twice (i.e. the funds deposited at Institution B in the above example could not be moved for twelve months). Under the new rules, only one transfer of this type may occur during a twelve month period; the existence of multiple accounts is now ignored.

These rules apply to both rollovers from one traditional IRA to another, as well as from one Roth IRA to another.  The term “traditional” includes Simplified Employee Pensions (SEP) and SIMPLE IRA accounts.
The new rule is effective for cash distributions and rollovers occurring on or after January 1, 2015.  An individual who received a cash distribution from an IRA during 2014 that was properly rolled over within 60 days will not be precluded from engaging in a similar transaction in 2015.

Equally important, the one transfer per year rule does not apply to the following types of transfers:

  • Direct, trustee-to-trustee transfers, where IRA or Roth IRA funds are transferred electronically from one financial institution to another.
  • Rollovers from a traditional IRA to a Roth IRA, which are treated as taxable conversions.
  • Transfers between qualified plans, such as employer sponsored pension and 401(k) accounts.

If you have any questions regarding the application of these rules to your 2014 or 2015 tax situation, please contact your AAF Partner or Rich Weiner at 774.512.4078 or rweiner@nullaafcpa.com.

AAF Wealth Management is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where AAF Wealth Management and its representatives are properly licensed or exempt from licensure. This blog is solely for informational purposes. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by AAF Wealth Management unless a client service agreement is in place.