Next Year’s New Limitation on IRA Rollovers: Is it Time to Act Now?

Published: Apr 10, 2014
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Beginning in 2015, there will be a significant change in the rules for so-called IRA “rollovers” (transactions that allow you to withdraw cash from one IRA, and redeposit it in another IRA within sixty days, without paying any current tax). The IRS recently announced that, beginning on January 1, 2015, you will be limited to one tax-free IRA rollover in each twelve-month period, regardless of how many IRA accounts you own.

It is important to note that this new ruling has NO impact on trustee-to-trustee transfers of IRA funds, which are not considered “rollovers,” are not reported to the IRS, and are not subject to the one-per-year limit.

The good news: Besides unlimited trustee transfers of IRA funds and accounts, you will still be able to make one tax-free IRA-to-IRA rollover once every twelve months (beginning on the date you receive the IRA distribution, not on the date you roll it back into another IRA).

The bad news: Beginning next year, you will not be able to make an IRA-to-IRA rollover if you’ve already made a rollover, involving any of your IRAs, in the preceding twelve months. In addition, those now-taxable IRA withdrawals may potentially be subject to a 10% early withdrawal penalty as well as a 6% excess contribution tax.

Also note that (a) rollovers between Roth IRAs are subject to the same rules as those for traditional IRAs and (b) rollovers from employer retirement plans to IRA accounts aren't counted for purposes of these rules.

A recent IRS announcement indicates that the Service intends to make this change by revising its Publication 590 and existing proposed regulations.

The change in IRS policy may have a specific impact on clients who have structured their portfolio into a series of IRAs, or for those individuals who occasionally rely on IRA assets as a source of short-term funds. Please do not hesitate to contact your personal wealth advisor to discuss how these proposed regulations could affect your financial and tax plans.