Upcoming IRA Rollover Rule Change

Taxpayers should take caution when rolling traditional IRA funds into another account starting as early as January 1, 2015. Under current law any amount distributed from a traditional IRA is not included in taxable income as long as the money is deposited into another traditional IRA within 60 days. If the rollover is not completed in that time, the amount is included in taxable income and subject to the early withdrawal penalty of 10% (depending on age). Taxpayers are also only allowed to make one IRA-to-IRA rollover in any 12 month period. The law was interpreted that each IRA account had its own 12 month period limitation so taxpayers could still do multiple rollovers from different IRA accounts. The law was only violated if multiple rollovers occurred in the same account within a 12 month period.  

However, a recent US Tax Court decision could change that interpretation of the law. The Tax Court held that only one rollover per 12 month period is allowed from any IRAs. The rollover rule is no longer on an IRA-by-IRA basis, but it looks at an aggregate of all IRAs held by one individual. If more than one rollover from any IRA occurs in a 12 month period then the early withdrawal rules kick in and the amount would be taxable. The IRS indicates that they plan to follow this Tax Court decision, but will not implement the rule until January 1, 2015 at the earliest. It is important to note that this rule does not apply to direct transfers from one IRA trustee to another. This type of transfer is not considered a rollover as the funds were never distributed to the taxpayer. The one-rollover-per-year-rule only applies to rollovers and not transfers. What we gather from this is that if there are IRA rollovers you wish to make we advise doing so before year end to avoid limitation in 2015.