New Amendment Impacts IRA Rollovers for 2015

scrabble blocks spelling out IRA individual retirement accountAs of the beginning of this year, the IRS has implemented a new IRA amendment that allows for only one IRA rollover from one IRA account to another (or the same IRA) in any 12-month period, regardless of the number of IRAs you own.

According to the IRS, the limit applies by aggregating all of an individual’s IRAs, including SEP and SIMPLE IRAs as well as Traditional and Roth IRAs, effectively treating them as one IRA for purposes of the limit. There are, however, two exceptions to this restriction:

  • Trustee-to-trustee transfers between IRAs are not limited
  • IRA Rollovers from Traditional IRAs to Roth IRAs (referred to as “conversions”) are not limited

Beginning this year, if you receive a distribution from an IRA of previously untaxed amount, you must include the amounts in gross income if you made an IRA-to-IRA rollover in the preceding 12 months. Also, you may be subject to the 10 percent early withdrawal tax on the amounts you include in gross income.

In addition, if you pay the distributed amounts into another (or the same) IRA, the amounts may be taxed at 6 percent per year as long as they remain in the IRA, and they may be treated as an excess contribution, according to the IRS.

The new IRA rollovers amendment is the result of an interpretation by the U.S. Tax Court, in a January 2014 decision, applying the one-per-year limit to preclude an individual from making more than one tax-free rollover in any one-year period, even if the IRA rollovers involve different IRAs. Before this year, the one-per-year limit applied only to IRA rollovers involving the same IRAs.

To give taxpayers time to transition to the U.S. Tax Court’s decision, the IRS decided shortly after the court ruling that the new interpretation would not apply before January 1, 2015.

For additional information regarding the new IRA amendment, please visit: http://www.irs.gov/Retirement-Plans/IRA-One-Rollover-Per-Year-Rule.

Photo credit: LendingMemo / Foter / CC BY

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