The tax code is always the authoritative source. This is a difficult issue for many because some look at this, and you’ll see, like, their Aunt Fay rolling over a couple of her IRAs to a different bank to get a better rate. Now, she’s getting a full one percent, but if she did that in 2015, one of our Aunt Fay’s IRA rollovers might be a taxable distribution.
New One Time IRA Rollover Rules in 2014
While some worry about their aunt being caught up in this new rule, others look at it and they welcome the change and that’s because some individuals were maximizing the opportunities that were available under the view of that old multiple rollover rule. So, they’d take a distribution from IRA 1 and then 58 days later, take a distribution from IRA 2 and use the dollars to repay IRA 1. And then 58 days later, they use a distribution from IRA 3 to repay IRA 2. That’s followed by IRA 4’s distribution to repay IRA 3, and so on. It just turned into this extended interest-free loan as long as you didn’t miss one of the 60-day deadlines, which happened all the time, and then they would come in for a private letter ruling wanting us to give them some relief. In response to this new court ruling, IRS issued Announcement 2014-15, and it states that IRS anticipates it will follow the interpretation of Code Section 408(d)(3)(B).
New IRA Rollover Rules
IRS has already withdrawn the proposed regulation from 1981 and also intends to revise Pub. 590. And that hesitant language, that’s because the announcement was issued shortly after that Tax Court ruling, and I think, at that time, there were a lot of people that still felt the ruling would be reversed. However, it was not reversed. What this means for everyone is that beginning no earlier than January 1, 2015, individuals will only be allowed one rollover of a distribution from any of their IRAs during any one-year period. This announcement does not apply to any rollover that involves an IRA distribution occurring before January 1, 2015. It also applies to distributions rolled over from SEP and SIMPLE IRA plans, because those funds are held in IRAs, and it does not apply to any distributions rolled over from retirement plans.
Example of New IRA Rollover Rules
We’ll have, of course, an example. It’s December 31, 2014, and you take a required minimum distribution from each of your five IRAs. A couple weeks later, you’re reviewing the calculations and discover that you’ve taken $5,000 more from each IRA than was required, and you don’t want to have to pay tax on all those distributions. Can you then rollover, tax-free, $5,000 back into each IRA within 60 days? Since these were 2014 distributions, you can, as long as there were no other rollovers from each of those IRAs made for distributions occurring within that last year. It’s like, for 2014, we’ve decided to use the rule as it was outlined in Pub. 590. Only distributions occurring after December 31, 2014, may be affected by this new rollover interpretation. In our example, if we change the facts to make the distributions occur in 2015, only one of those distributions could be rolled over tax-free within 60 days. The other four would be taxable distributions. You’ll need to just keep checking back on www.irs.gov for any updates on this issue and the release of any proposed regulations on it.