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NEW IRA TAX RULING

The U.S. Tax Court recently ruled that taxpayers can no longer make a non-taxable rollover from one IRA to another if they have already made a rollover from any of their IRAs in the preceding one year period.

What does this mean? Beginning as early as January 1, 2015, you can make only one rollover from an IRA to another IRA in any twelve month period. This is regardless of the number of IRAs you own. The IRS had stated in Publication 590 that ”owners could do one rollover per IRA every twelve months”; five separate IRAs, five separate rollovers. Not anymore!

Under this tax court ruling, a taxpayer who has more than one IRA rollover in a twelve month period would have the second rollover disallowed. The IRA “rollover” would be fully taxable and subject to penalties and interest.

This tax court ruling applies only to IRA to IRA rollovers. It does not apply to 401(k) plan to IRA, IRA to Roth IRA conversions or IRA transfers known as trustee to trustee transfers. Unlike an IRA rollover, with a trustee to trustee transfer the taxpayer never has physical control of the funds.

We have never recommend IRA rollovers to our clients, it’s just too easy to miss the 60 day rollover period and trigger an IRA withdraw instead. In this day and age, there are very few reasons to use an IRA rollover to transfer funds between IRA sponsors and with this court ruling, there’s even fewer.

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