The Internal Revenue Service gave advisors some much needed guidance regarding the ever-challenging issue of rollovers as 2014 drew to a close.
The guidance reflects a change made earlier this year by a tax court ruling that said IRA holders can do only one IRA-to-IRA rollover per year.
IRA guru Ed Slott, who runs IRAHelp.com — and provides countless seminars for advisors to help them grasp the mind-numbing complexities of rollovers — gave me on the same day the IRS guidance was released his top-10 list of where advisors make the most mistakes regarding rollovers. “Probably the biggest mistakes are with beneficiary rollovers,” he said, and “that includes children, grandchildren, trusts and charities.”
The IRS clarification that was released in mid-November relates to the change announced in early April regarding how the statutory one-per-year limit applies to rollovers between IRAs.
The change in the application of the one-per-year limit reflects an interpretation by the U.S. Tax Court in a January 2014 decision applying the limit to preclude an individual from making more than one tax-free rollover in any one-year period, even if the rollovers involve different IRAs.
Before 2015, the one-per-year limit applies only on an IRA-by-IRA basis (that is, only to rollovers involving the same IRAs), the IRS explained.
Beginning next year, the limit will apply by aggregating all an individual’s IRAs, effectively treating them as if they were one IRA for purposes of applying the limit, the IRS said.
The new interpretation will apply beginning Jan. 1, 2015, and a distribution from an IRA received during 2014 and properly rolled over (normally within 60 days) to another IRA will have no impact on any distributions or rollovers during 2015 involving any other IRAs owned by the same individual.
“This will give IRA owners a fresh start in 2015 when applying the one-per-year rollover limit to multiple IRAs,” the IRS said.