Rollovers Now Restricted

Rollovers Now Restricted

Be aware: An IRS clarification that took effect Jan. 1, 2015, now restricts IRA rollovers. Your clients can make only one rollover from any of their IRAs to another (or the same) IRA in a 12-month period, regardless of the type or number of IRAs they own.  This one-per-year limit applies across all IRAs in the aggregate including traditional, Roth, SIMPLE and SEP IRAs. 

Before Jan. 1, the one-per-year limit applied on an IRA-by-IRA basis. This change in the IRS’s interpretation of the one-per-year rule comes from the U.S. Tax Court’s decision in Bobrow v. Commissioner. 

If your clients make more than one rollover in a 12-month period, the improper rollovers may be subject to the following tax consequences:

  • Any previously untaxed amounts may be taxable
  • If you are under age 59 ½ when you took the distribution, you may be subject to an additional                 10% early withdrawal tax
  • All or a portion of the improper rollover may be treated as an excess contribution and be subject to an additional penalty tax of 6% per year for each year that the excess contribution remains in the IRA

Your clients can still continue to do as many of the following transactions in a 12 month-period as they want: 

  • Trustee-to-trustee transfers between IRAs
  • Rollovers from traditional IRAs to Roth IRAs (i.e., “conversions”)
  • Rollovers between qualified plans and IRAs

The Bottom Line: Make sure you understand the new IRS rules before you make any client recommendations this year. Your Ash Brokerage annuity team is here to help.