IRS Provides IRA Owners with Fresh Start for Rollovers in 2015

Couple signing contracts with a consultantThe IRS has provided transition relief for its change in the one-per-year limit imposed on tax-free rollovers between Individual Retirement Account (IRA) announced in March 2014. and scheduled to go into effect January 1, 2015. Under the change, the one-per-year rule applies to each individual rather than to each IRA, which means the effect of a rollover distribution in 2014 would extend into 2015. However, under transition relief, a distribution from an IRA received during 2014 and properly rolled over (normally within 60 days) to another IRA, will have no effect on any distributions and rollovers during 2015 involving any other IRAs owned by the same individual. This will give IRA owners a fresh start in 2015 when applying the one-per-year rollover limit to multiple IRAs.

The IRS noted that although a conversion rollover from a traditional IRA to a Roth IRA is not subject to the one-per-year limit, a rollover between an individual’s Roth IRAs would preclude a separate rollover within the one-year period between the individual’s traditional IRAs (including SEP and SIMPLE IRAs), and vice versa.

In the March 2014 announcement the IRS announced that it intends to follow the Tax Court’s interpretation of the statutory one-rollover-per-year limitation on IRA rollovers as an aggregate limit. The IRS has previously applied the one-per-year limitation under Code Sec. 408(d)(3)(B) on an IRA-by-IRA basis, as indicated in Publication 590, Individual Retirement Arrangements, and issued Proposed Reg. §1.408-4(b)(4)(ii) consistent with that application .

However, in A.L. Bobrow, 107 TCM 1110, the Tax Court held that the limitation applies on an aggregate basis, so that an individual could not make an IRA-to-IRA rollover if the individual had made such a rollover involving any of the individual’s IRAs in the preceding one-year period.

The IRS intends to withdraw the proposed regulation and revise Publication 590 and anticipates that it will follow the Bobrow interpretation, regardless of the end resolution of that case. Adoption of that interpretation of the statute will require IRA trustees to make changes in the processing of IRA rollovers and in IRA disclosure documents. Therefore, the IRS will not apply the Bobrow interpretation of Code Sec. 408(d)(3)(B) to any rollover that involves an IRA distribution occurring before January 1, 2015.

Additionally, proposed regulations expected to be issued applying this interpretation will not take effect prior to 2015. Application of this interpretation by the IRS will not affect the ability of an IRA owner to transfer funds from one IRA trustee directly to another, because such a transfer is not a rollover and, therefore, is not subject to the one-per-year limitation.

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