In a recent case known as Bobrow v. Commissioner, the U.S. Tax Court held that an IRA owner may only conduct one 60-day IRA rollover within a one year period for all of their IRAs. This holding from the Tax Court, was in opposition to the customs of many IRA custodians, financial advisors, and to IRS Publication 590. For more on Bobrow, and the rationale from the Tax Court please check out my prior blog article here.
Following Bobrow, the IRS issued Announcement 2014-15 and stated that the IRS was going to amend its guidance to taxpayers in Publication 590 and was going to adopt the Tax Court’s position of one 60-day Rollover per IRA per year
As a result of Bobrow and IRS Announcement 2014-15, taxpayers should consider the following issues when rolling over an IRA.
- Trustee to Trustee Transfers – If you want to change IRA custodians, the best way is via a trustee to trustee transfer whereby your old custodian transfers your IRA funds to your new custodian. Funds are sent directly from your old IRA to your new IRA and you as the IRA owner never touch the funds. IRA owners can still do as many trustee-to-trustee transfers as they want.
- New Rule to be Enforced in 2015 – The One 60-Day Rollover Per One Year Period rule won’t be enforced by the IRS until 2015. So don’t stress if you’ve already conducted multiple 60-Day rollovers over multiple accounts within a one year period. That is, unless your last name isn’t Bobrow.
- One 60-Day Rollover per 1-Year Period, Not Per Tax Year- The new rule has been explained as One 60-Day Rollover Per Year, however, the actual code (IRC 408(d)(3)(B) states per “1-year period” from the date of the last 60 Day Rollover. As a result, don’t think of one per tax year but rather think one can be done 1-year following the last 60 Day Rollover conducted by the IRA owner.
- One 60-Day Rollover Per Roth IRA and One Per Traditional IRA Per 1-Year Period – Based on my analysis of the Code, individuals would be allowed one 60-Day Rollover per Traditional IRA and one per Roth IRA. The analysis is certainly complex but I’ve tried to summarize it below. Traditional IRAs are governed by IRC 408. IRC 408(d)(3)(B) is the section which limits 60 day rollovers to one per 1 year period and this was the section the Tax Court relied on in Bobrow. Roth IRAs are governed by IRC 408A, and IRC 408A(e) is the section that enables 60-Day rollover contributions for Roth IRAs. Under, IRC 408A(e) the code allows Roth IRA qualified rollover contributions that meet the requirements of IRC 408(d)(3) [the traditional IRA code section] but specifically states that, “For purposes of IRC 408(d)(3)(B), there shall be disregarded any qualified rollover contribution from an individual retirement plan (other than a Roth IRA) to a Roth IRA.” In other words, the section enabling Roth IRA rollovers states that you only count the number of Roth IRA rollovers when considering the one-year rollover rule for a Roth IRA Rollover. As a result, even if the taxpayer had conducted a rollover of a traditional IRA in the prior twelve-month period, this rollover would not be counted in applying the one 60-Day rollover per year rule for the Roth IRA. This application of a separate One-Rollover-Per-Year for Roth and Traditional IRAs is also the position the IRS appears to be taking. In the IRS summary of the IRA One-Rollover-Per Year Rule, the IRS explained the One-60 Day Rollover per IRA rule for traditional IRAs and then stated that, “A similar limitation would apply to Roth IRAs.” Rather than lumping the Roth IRAs into Traditional IRAs for purposes of the rule, the IRS seems to be treating them separately. It would be nice though if they could be more clear on this issue before 2015 “rolls” around.
So, in sum, always opt for trustee-to-trustee transfers of IRA funds (where possible) and avoid taking a 60-Day Rollover from an IRA unless you are certain you have not conducted one in the prior 1-year period.