More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- The Custody Rule and its Ramifications When an RIA takes custody of a clients funds or securities, risk to that individual increases dramatically. Rule 206(4)-2 under the Investment Advisers Act (better known as the Custody Rule), was passed to protect clients from unscrupulous investors.
IRA guru Ed Slott is warning advisors to notify their clients of the recent tax court ruling that says IRA holders can do only one IRA-to-IRA rollover per year, which runs counter to the IRS interpretation of the tax code.
The recommended way to move money from IRA to IRA is via direct transfers, where the money goes directly from one IRA to another—and the holder doesn’t touch the money.
However, in the Jan. 28 tax court decision, the petitioners were transferring money from IRA to IRA using indirect rollovers, where the money is payable to the IRA holder, but the money has to be put back into another IRA within 60 days.
“Too many people do this” IRA-to-IRA rollover, Slott told ThinkAdvisor.
The Tax Court decided that neither the IRS nor the plaintiffs, the Bobrows, were correct on the treatment of two IRA rollovers done by Mr. Bobrow, Slott writes in his Slott Report. “Instead the Court ruled that only one of Mr. Bobrow’s rollovers was timely completed because, according to the court, an individual can only do one IRA-to-IRA rollover per year.”
In IRS Publication 590, and in private letter rulings, Slott says that the “IRS has said that you can do one rollover per year, per account. If you had two IRA accounts, you could do one rollover from each account in a 365-day period (provided you didn’t roll the money distributed from the first IRA into the second IRA).”
But with the tax court ruling, Slott says that “no matter how many IRAs you may have, you can only do one rollover per year” — that’s 365 days, not a calendar year — “and this reasoning would also apply to Roth-to-Roth rollovers as well.”
Slott told ThinkAdvisor that advisors should warn their clients of this ruling, because the IRS plans to revise Publication 590 to reflect this tax court decision come Jan. 1, 2015. “Stop [IRA-to-IRA rollovers] immediately,” Slott says, and “do direct transfers from now on because those are unlimited."
Check out 6 IRA Investing Mistakes to Avoid on ThinkAdvisor.