IRS Adopts New Rollover Rule

Filed under: The Advisor's Blog

IRA imageIf any of your clients are counting on performing an IRA rollover in the coming year – or if they completed a rollover already this year – it may help to clarify the new one-per-year rule recently released by the IRS. Knowing the facts can prevent rollover regrets, and help your clients plan ahead for next year.

In March of this year, the IRS announced that taxpayers will only be permitted one tax-free rollover of IRA funds per year. This rule stands regardless of how many individual retirement accounts an individual actually holds. As in the past, the amount distributed to the taxpayer must be paid into an IRA within 60 days. The new rule begins on January 1, 2015.

How this affects your clients:

1. A taxpayer who receives an IRA distribution on or after January 1, 2015, cannot roll any part of those funds into an IRA if that individual has already performed a rollover of funds into another IRA in the preceding year.

2. If a client has already performed a rollover to or from their Roth IRA in the past year, they cannot perform a rollover with any other IRAs, and vice versa.

3. The IRS included a transition rule in the decision. For 2015, the IRS will disregard any 2014 rollovers in determining whether a rollover can be made in 2015, so long as the IRA in question was not utilized in the 2014 rollover.

4. The new rule does not apply to Roth conversions, trustee-to-trustee rollovers, or rollovers between qualified plans and IRAs.

5. The IRS urges IRA trustees to perform direct rollovers to those who request rollover distributions, in order to prevent account holders from being subject to these rules.

In short, performing tax-advantaged rollovers can prevent IRA holders from performing similar maneuvers a subsequent time in any 12-month period. Therefore, sound financial planning with regard to IRAs is now more important than ever, to prevent costly mistakes and regrets.

Investment Advisory Services offered through John P. Dubots Capital Management, LLC, CA License # 0822926