IRS Clarifies Application of One-Per-Year Limit on IRA Rollovers, Allows Owners of Multiple IRA’s a Fresh Start in 2015

If you have an IRA beware of this new rule that limits the number of IRA Rollovers that are not “trustee to trustee” to one per year.

When you receive a distribution from a traditional IRA or your employer’s plan, you would normally report it as income unless you rollover that distribution to another IRA no later than 60 days after the day you receive the distribution from your traditional IRA or your employer’s plan. In the absence of a waiver or an extension, amounts not rolled over within the 60-day period do not qualify for tax-free rollover treatment. You must treat them as a taxable distribution from either your IRA or your employer’s plan. These amounts are taxable in the year distributed, even if the 60-day period expires in the next year. You may also have to pay a 10% additional tax on early distributions as discussed later under Early Distributions. Unless there is a waiver or an extension of the 60-day rollover period, any contribution you make to your IRA more than 60 days after the distribution is a regular contribution, not a rollover contribution.

Until recently, taxpayers would take advantage of this law for than once in a calendar year to enable short term access to retirement monies without have to recognize income from the short-term use of the funds during each 60-day measuring period. But starting with 2015, the IRS has stated in Announcement 2014-15, 2014-16 I.R.B. 973, that this manner of rollover is limited to one per year even if the rollovers involve different IRA’s reflecting an interpretation by the U.S. Tax Court in a January 2014 decision, Bobrow v. Commissioner, T.C. Memo. 2014-21.

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 an individual’s IRAs, effectively treating them as if they were one IRA for purposes of applying the limit.

Although an eligible IRA distribution received on or after Jan. 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. As today’s guidance makes clear, a rollover between an individual’s Roth IRAs will preclude a separate tax-free rollover within the 1-year period between the individual’s traditional IRAs, and vice versa.

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 are encouraged to offer IRA owners requesting 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.

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