This, courtesy of the Financial Planning Association (FPA), of which I am a member:
A U.S. Tax Court ruling on IRA rollovers has the IRS changing its longstanding position.
In January of this year the U.S. Tax Court ruled that the “once a year” IRA rollover rule applies to all of an individual’s IRAs, not to each separately. The court’s decision conflicts with a longstanding IRS position (as outlined in IRS Publication 590) that states the rule applies separately to each IRA owned, thus allowing multiple rollovers if taken from separate accounts during a 365-day period — as opposed to a calendar year period.
For its part, the IRS had not publicly indicated how it would handle the court’s decision until recently, when it announced that it would uphold the court’s decision and revise its rules and publications accordingly.
Ruling Applies to Indirect Rollovers
It should be noted that the rule applies only to indirect rollovers, in which the account holder initiates a distribution from an IRA and receives a check for the distributed amount which is deposited into his or her personal account. It is then up to the individual to redeposit the funds into the new IRA within the allotted 60-day period to avoid possible taxation and penalties on the amount distributed.
If individuals want to move money more frequently, they can still use the direct rollover approach — also known as a trustee-to-trustee rollover — anytime without regard for the new once-per-year rule. With a direct rollover, the money goes directly from the former IRA custodian/trustee to the new custodian without the account holder ever touching it. The Tax Court was clear in its ruling that individuals who have more than one IRA may make multiple direct rollovers from the trustee of one IRA to the trustee of another IRA without triggering the one-year limit. Other advantages of a direct rollover include simplicity and continued tax deferral on the full amount of the account holder’s retirement savings.
Both the court’s decision and the IRS’s ruling may have an impact in individual investors’ retirement planning decisions. To play it safe, consult with a qualified financial and/or tax advisor before making any IRA moves.
Source: financial-planning.com, “IRS Issues IRA Rollover Warning,” April 10, 2014.
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What are the Six Best and Worst IRA Rollover Decisions? You may want to read this.
Enjoy,
Jim
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Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. IFG helps specializes in crafting wealth design strategies around life goals by using a proven planning process coupled with a cost-conscious objective and non-conflicted risk management philosophy.
The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.
