New Limits on IRA Rollovers

Beginning in 2015, you can make only one 60 day distribution and rollover from an IRA account to another (or the same) IRA account in any 12-month period, regardless of the number of IRA accounts you own. You can, however, continue to make as many trustee-to-trustee transfers between IRAs as you want. You can also make as many rollovers from traditional IRAs to Roth IRAs ("conversions") as you want. 

In general, you don’t have to include in your gross income any amount distributed to you from a traditional IRA if you deposit the amount into another (or the same) traditional IRA within 60 days. Under tax law, only one IRA-to-IRA rollover can be made in any 12-month period. This limitation was previously interpreted as applying on an IRA-by-IRA basis, meaning a rollover from one IRA to another would not affect a rollover involving other IRAs of the same individual.

The change in the application of the one-per-year limit, starting in 2015, reflects a 2014 interpretation by the U.S. Tax Court that the rule limited an individual to one tax-free rollover in any one-year period, no matter how many different IRAs you might own. Therefore, after one rollover has been accomplished, all subsequent rollovers in the same year will be taxable, unless accomplished as trustee-to-trustee transfers.

The IRS made clear that the new interpretation will apply beginning Jan. 1, 2015, and said that a distribution from an IRA received during 2014 and properly rolled over (normally within 60 days) to another IRA, will have no impact on any distributions and rollovers during 2015 involving any other IRAs owned by the same individual. This will give IRA owners a fresh start in 2015 when applying the one-per-year rollover limit to multiple IRAs. 

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. In addition, the IRS guidance makes clear that a rollover between an individual’s Roth IRAs counts toward the one transaction per year, unless accomplished through trustees, and will preclude a separate tax-free rollover within the 1-year period between the individual’s traditional IRAs. 

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.

Please be sure to note that the one year period begins on the date that you take the distribution.  It is not based on the calendar year. Also, if you take more than one distribution within one year of the initial distribution, funds from distributions after the first one should not be deposited into an IRA account.  If you do, those funds would be subject to an annual penalty until removed.

If you would like more information on the rule change, please call our office. We are happy to assist you.