New Rules for IRA Rollovers

The Internal Revenue Service recently made an important change to its rules for IRA rollovers. IRA rollovers are transactions that allow you to withdraw cash from one IRA and redeposit it in another IRA without paying tax, which is a popular way of moving IRA money around from one investment to another. An IRA withdrawal is reported on your tax return but is treated as a tax-free transaction if:

• You redeposit the amount you withdrew from the IRA into the same or other IRA no later than 60 days after the date you made the withdrawal.
• You execute a tax-free rollover only once a year. The 1-year wait period begins on the date you receive the IRA distribution, not on the date you roll it back into another IRA.

The 60-day rule is unchanged, but the 1-year waiting period has been revised.

For years, the IRS applied the 1-year waiting period separately to each IRA; however, following a recent Tax Court case, the IRS will treat all your IRAs as one IRA for purposes of the 1-year waiting period – beginning in 2015. The new rule will not apply to any rollover that involves a pre-2015 IRA distribution.

The new rule will also apply to rollovers between Roth IRAs. This means that beginning in 2015, all your Roth IRAs will be treated as one Roth IRA for purposes of the 1-year waiting period between rollovers. Rollovers from employer retirement plans to IRAs aren’t counted for purposes of the 1-year wait period, and neither are conversions of regular IRAs to Roth IRAs.

Finally, the 1-year wait period doesn’t apply to trustee-to-trustee transfers between traditional IRAs, or between Roth IRAs. These tax-free transfers, made directly from one financial institution to another, can be made any time and aren’t reported on your tax return.

The revised rules for IRA rollovers reinforce the need to speak with a competent professional before moving around your tax-favored retirement funds. Please call us to discuss these new IRS rules or to arrange for an update to your retirement plan.