IRA One-Rollover-Per-Year Rule
Beginning January 1, 2015, you can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs you own (Announcement 2014-15). 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.
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 (Internal Revenue Code Section 408(d)(3)). Under Internal Revenue Code Section 408(d)(3)(B), only one IRA-to-IRA rollover can be made in any 12-month period. Proposed Treasury Regulation Section 1.408-4(b)(4)(ii), published in 1981, and IRS Publication 590, Individual Retirement Arrangements (IRAs) interpret this limitation 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.
U.S. Tax Court decision
The Tax Court recently held that you can’t make a non-taxable rollover from one IRA to another if you have already made a rollover from any of your IRAs in the preceding 1-year period (Bobrow v. Commissioner, T.C. Memo. 2014-21). Following the holding in this decision means:
• you must include in gross income any previously untaxed amounts distributed from an IRA if you made an IRA-to-IRA rollover in the preceding 12 months, and
• you may be subject to the 10% early withdrawal tax on the amount you include in gross income.
Additionally, if you pay these amounts into another (or the same) IRA, they may be:
• excess contributions, and
• taxed at 6% per year as long as they remain in the IRA.
The IRS intends to follow the Tax Court’s interpretation of Internal Revenue Code Section 408(d)(3)(B). However, to give IRA owners and trustees time to adjust, the IRS will delay implementation until January 1, 2015, at the earliest. Proposed Treasury Regulation Section 1.408-4(b)(4)(ii) will be withdrawn and Publication 590 will be revised to reflect the new interpretation.
Only rollovers will be affected
This change won’t affect your ability to transfer funds from one IRA trustee directly to another, because this type of transfer isn’t a rollover (Revenue Ruling 78-406, 1978-2 C.B. 157). The one-rollover-per-year rule of Internal Revenue Code Section 408(d)(3)(B) applies only to rollovers.
Guidance on Annual IRA Rollover Limit
The IRS issued guidance on applying the one-IRA-rollover-per-year rule on tax-free rollovers that was announced in March of this year and that will go into effect in 2015. Transition relief is provided for IRA distributions made in 2015 from rollovers occurring in 2014. If an IRA distribution is received in 2014 and properly rolled over (normally within 60 days) into another IRA owned by the same individual, it will not be included in the one-IRA-rollover-per-year-limit beginning in 2015 if the 2015 distribution is from a different IRA that neither made nor received the 2014 distribution. This will give IRA owners a fresh start when applying the limit in 2015. A rollover from a traditional IRA to a Roth IRA (i.e., a conversion) is not subject to the one-rollover-per-year limit, nor are rollovers from qualified plans or trustee-to-trustee transfers. Announcement 2014-32 , 2014-48; IR 2014-107 .