The IRS recently clarified the effect the IRS-imposed one-per-year limit has on tax-free IRA rollovers. Earlier in 2014, the U.S. Tax Court ruled that the one-per-year limit would preclude a taxpayer from making more than one tax-free rollover, even in instances involving different IRAs. In effect, the ruling will aggregate all of an individual taxpayer’s IRAs and treat them as one, whereas the one-per-year rule previously applied to rollovers that involved the same IRAs.
The IRS announced that in the interest of allowing taxpayers time to transition to the new interpretation of the rule, the new application will not go into effect until January 1, 2015. Announcement 2014-32 clarifies that a distribution received from an IRA in 2014 and properly rolled over to another IRA will not impact distributions and rollovers during 2015 that involve IRAs owned by the same taxpayer. While eligible IRA distributions received January 1, 2015 or later will be treated as tax-free, subsequent distributions from any IRAs that belong to the same individual and are made within one year of the first distribution will not receive tax-free treatment.
Conversions from traditional IRAs to Roth IRAs, rollovers between IRAs and qualified plans, and transfers between IRA trustees will continue to be excluded from the one-per-year rule. Furthermore, these transactions will not be considered in applying the new interpretation of the rule. Therefore, it is advantageous for IRA trustees to offer the option of a trustee-to-trustee transfer to IRA owners who request a distribution for rollover. A trustee-to-trustee transfer can be accomplished by transferring the requested amount from one account to another by issuing the owner a check made payable to the receiving IRA trustee.
Taxpayers who would like professional advice in understanding the implications of the new interpretation of the one-per-year rule for IRA rollovers should contact the firm of Gary M. Kaplan. As a Certified Public Accountant, Mr. Kaplan and his team are qualified to assist taxpayers in Florida, New York, Utah, Maryland, and Washington, D.C. with virtually any tax planning situation. More information about IRA rollovers and a variety of other important accounting topics is available at gkaplancpa.com.
