IRA Rollovers Limited to One-Per-Year
In an about-face, the Internal Revenue Service (IRS) recently announced that it changed its position on the frequency with which individuals may effect tax-free rollover distributions from an Individual Retirement Account (IRA) to another IRA. Prior to the Announcement, the IRS had taken the position that a “one-rollover-per-year” limitation applied to each individual IRA and not each individual taxpayer. In other words, if an individual taxpayer maintains multiple IRAs and rolls over the assets of IRA-1 into IRA-3, he or she is not precluded from making a tax-free rollover from IRA-2 to IRA-4 or any other IRA within one year after the rollover from IRA-1 to IRA-3, provided that each rollover is completed within 60 days of the distribution. Under the newly announced position, a taxpayer may only effect one rollover in any one-year period irrespective of the number of IRAs maintained. For example, if the taxpayer mentioned above effected a tax-free rollover contribution from IRA-1 to IRA-3 on April 1, 2014, he or she would not be able to effect another rollover from IRA-2 to IRA-4 (or to or from any IRA) until April 2, 2015 at the earliest.
The IRS will withdraw its previously-issued proposed regulations, revise Publication 590 (relating to IRAs) and re-propose regulations clarifying that the IRA rollover limitation is applied on an aggregate basis. The IRS explained that the one-per-year limitation in the new guidance will not affect the ability of individuals to transfer funds directly from one IRA trustee to another trustee (sometimes called “trustee-to-trustee transfers”). The new proposed regulation will not be effective prior to January 1, 2015 in order to ease administrative concerns. Stay tuned. Troutman Sanders employee benefits attorneys will alert you when the new guidance becomes available.
© TROUTMAN SANDERS LLP. ADVERTISING MATERIAL. These materials are to inform you of developments that may affect your business and are not to be considered legal advice, nor do they create a lawyer-client relationship. Information on previous case results does not guarantee a similar future result.