RECENT Developments

by | May 7, 2015 | Institutional Services

IRA-to-IRA Rollovers

IRS Announcement 2014-15 addressed the application of the one-per-12-month-period limit on tax-free rollovers between individual retirement accounts (IRAs). Prior to 2015, the limit applied to each IRA an individual owned. Beginning in 2015, the limit will apply to the aggregate of all an individual’s IRAs.

IRS Announcement 2014-32 provides additional clarification and a transition rule for distributions in 2015. Any IRA distribution that occurred in 2014 and was rolled over within 60 days is disregarded for purposes of the aggregate IRA-to-IRA rollover rule, even if the 60th day was in 2015. The aggregate IRA-to-IRA rollover rule begins with distributions made from IRAs after December 31, 2014.

Example: John has several IRAs spread among various financial institutions. He takes a lump-sum IRA distribution on November 10, 2014, and rolls the distribution into another IRA on January 5, 2015. For 2015, John is permitted to take a lump-sum distribution from a different IRA (other than the IRA that issued the previous distribution and the IRA that received the rollover on January 5, 2015) and perform an IRA-to-IRA rollover within 60 days.

The 12-month waiting period between rollovers is measured from the date of an IRA distribution that is subsequently rolled into another IRA within 60 days. If another IRA-to-IRA rollover is made before the 12-month period has passed, that rollover will be invalid and the amount rolled over will be taxable.

The IRS is encouraging IRA trustees/custodians/issuers to offer an alternative when IRA owners request a rollover distribution. The alternative is a transfer of trusteeship from one IRA to another IRA. IRA trustees can accomplish this by transferring amounts directly from one IRA to another or by providing the IRA owner with a check made payable to the receiving institution for the benefit of the individual’s IRA.

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