If you own a traditional IRA some changes are in store for the way you manage them.
Beginning as early as January 1 2015 you can make only one rollover from a traditional IRA to another (or the same) traditional IRA in any 12-month period regardless of the number of IRAs you own. You can however continue to make as many trustee-to-trustee transfers between IRAs as you want. Any amount that is transferred between traditional IRAs either by rollover or trustee-to-trustee transfer is excluded from your gross income.
Currently any amount that is distributed to you from your traditional IRA does not have to be included in your gross income if you deposit the amount into another (or the same) traditional IRA within 60 days. Under Internal Code Section 408(d)(3)(B) only one IRA-to-IRA rollover can be made in any 12-month period. Proposed Treasury Regulation Section 1.408-4(b)(4)(ii) published in 1981 and IRS Publication 590 Individual Retirement Arrangements (IRAs) interpret this limitation as applying on an IRA-by-IRA basis meaning a rollover from one IRA to another would not affect a rollover involving other IRAs of the same individual.
A tax court recently held that if you have already made a rollover from any of your IRAs in the preceding 1-year period then you cannot make a non-taxable rollover from one IRA to another. If you made an IRA-to-IRA rollover in the preceding 12 months you must include in gross monthly income any previously untaxed amounts distributed from an IRA. You may be subject to the 10% early withdrawal tax on the amount you include in gross income. Additionally if you pay these amounts into another (or the same) IRA they may be excess contribution taxed at 6% per year as long as they remain in the IRA.
IRA owners and trustees will be given until January 1 2015 to adjust and begin to follow the Tax Court’s interpretation.
This change will not affect your ability to transfer funds from one IRA trustee directly to another because this type of transfer isn’t a rollover. The one-rollover-per-year rule of the Internal Revenue Code Section 408(b)(3)(B) applies only to rollovers.
Although this change does not take effect until next year it’s never too soon to start considering your options and how your income and savings might be affected. For financial and tax advice on this and other topics contact Lindemeyer to schedule a first consultation.
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