Beginning January 1, 2015, the IRS is taking a new position with respect to the number of tax-free IRA rollovers that can be done in any 365-day period. The new position is based upon a Tax Court holding (“Bobrow v. Commissioner,” T.C. Memo 2014-21) that a person may only roll over one IRA per 365-day period, regardless of the number of IRAs the person holds. The IRS announced this change in position, and proposed regulations, in IRS Announcement 2014-15.
Previously, a person could take a distribution from each IRA once during a 365-day period. The IRA rollover occurs when person receives a distribution check from an existing IRA and puts the monies into a different IRA within 60 days of the distribution. This would allow a “creative” person to take a tax-free loan from each of their IRAs each year, although such a strategy is extremely risky due to the 60-day payback law. The Tax Court held, and the IRS agreed, that a person needed to aggregate all of their IRAs in the application of the one-rollover-per-year rule. Thus, the Tax Court and IRS have closed this perceived loophole.
Remember that the actual rollover (to which this rule applies) is different from the direct rollover, also known as the trustee-to-trustee transfer. You can still move your IRA to a different trustee/custodian as frequently as needed.
While we are discussing the 2015 rule changes, it may be helpful to know that the IRA contribution limits for 2015 remain the same as in 2014. The amount that you can contribute to all of your traditional and Roth IRAs is the smaller of:
- $5,500 ($6,500 if you’re age 50 or older), or
- your taxable compensation for the year
Unfortunately, you cannot contribute to a regular IRA if you are age 70 or more but you can contribute to a Roth IRA, subject to the above limits. And, if you file a joint return, you and your spouse can each make IRA contributions even if only one of you has taxable compensation. The amount of your combined contributions can’t be more than the taxable compensation. It doesn’t matter which spouse earned the compensation.
This new IRA transfer rule may affect a few people wanting to take money out of their IRA. However, most people find the direct rollover to be an effective way of moving their IRA into a new investment program.
If you have questions or are interested in unbiased IRA transfer advice, please call us today at 800.571.6341. We at Janguard are here to help “Secure Your Independence”.