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IRA-to-IRA rollovers: Once is enough

8/28/2017

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The tax rules are relatively lenient for rollovers to a traditional IRA. For instance, if you transfer funds from your 401(k) plan to an IRA within 60 days, there's no tax liability on the transfer. Similarly, if you transfer funds from one IRA to another within the 60-day window — say, for investment reasons — you avoid tax for the current year. In effect, this gives you 60 days to use the money as you see fit. It's like getting an interest-free loan from the IRS, albeit for just two months.

However, be aware of a special wrinkle. The tax law also says that you're limited to just one IRA-to-IRA rollover for the year. In a 2014 tax court case involving this once-a-year rule (Bobrow, TC Memo 2014-21), the limit was applied to all the IRAs owned by the taxpayer, not each one separately. This is different from the previous interpretation by many tax commentators and even the IRS itself.

The facts in this case can be confusing, but here's all you need to know. The taxpayer argued that the one-year limit didn't apply to another IRA he owned after he completed an IRA-to-IRA rollover. The tax court disallowed his rollovers within the next 12 months. Subsequently, the IRS decreed that it would follow the court's ruling. If you're in a similar position, be aware that you can't use multiple rollovers within the same year.

What happens if you violate the once-a-year rule? The transfer is treated as a taxable distribution, so you'll be taxed at your regular tax rate on the portion representing deductible contributions and earnings. What's more, you might face additional tax complications. For example, a 10 percent penalty generally applies to taxable IRA distributions made before age 59½.
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The best approach is to avoid potential problems by strictly observing the IRA rollover rules. Give our office a call if you have questions specific to your situation.

"Tax Tips" are published weekly to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
 
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
 
We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, and all Chicagoland area. 

Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs.   
 
We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain.Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at info@monarchaccountinggroup.com. 
 
For more free resources, such as Online Advisor Newsletters, Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com.

Monarch Accounting Group, Inc
145 Tower Drive, Suite 4
Burr Ridge, IL 60527
Phone (630) 320-3720

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Phone: (630) 320-3720

Monarch Accounting Group Inc
145 Tower Drive, Suite 4
Burr Ridge, IL 60527-7836
Email: Info@MonarchAccountingGroup.com


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  • Home
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