Rollover is more than a dog trick! Watch out for limitations on the IRA Rollover.
Individual Retirement Accounts (“IRAs”) are accounts that many of us have to save for retirement. The Internal Revenue Service (“IRS”) provides favorable tax consequences while the accounts are held for retirement and the earnings on such funds grow tax free. Unfortunately if you take distributions too early penalties and income taxes will have to paid.
One of the benefits of an IRA is the ability to transfer monies from one IRA to another IRA if, for example, you want to change custodians or if you need monies for a short time period. The IRS allows such distributions if you “rollover” that same amount within 60 days of the initial distribution. For example if your IRA is $120,000 and you need $20,000 for a short term expense. Within 60 days of the $20,000 withdrawal if you put $20,000 back into your IRA you will have no penalties. The IRS proposed regulations and its Publication 590 stated that the 60 day rollover applied once a year for EACH account. For example if you had 3 IRAS you could do a 60 day rollover for each IRA in a year.
In a recent case, Bobrow v. Commissioner, the Tax Court determined that the 60 day rollover was NOT account by account but applied on an aggregate basis. Thus, if you have multiple IRAs the favorable 60 day rollover period only works ONE time in that year and NOT one 60 day rollover per IRA account.
IRS Announcement 2014-15, confirms the ONLY one 60 day rollover a year no matter how many IRA accounts you have and has provided transition relief and provides that the Bobrow decision will not apply to any rollover that involves an IRA distribution occurring before January 1, 2015.
ADVICE: The best way to not even worry about the 60 day rollover limitation is to do a DIRECT trustee to trustee transfer and do not take the distribution from of the IRA. A DIRECT trustee to trustee transfer has no 60 day limitation. If you do have to make a distribution from your IRA make sure you meet the 60 day limitation or you may have an extra 10% penalty tax, and an 6% excess contribution tax for the monies improperly rolled back to the IRA.
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