As my wife will attest, I am one of those guys who hates to read instructions before building something, and since the birth of our first child, I've been building quite a few things lately. Typically, I'll be almost halfway through the build, then realize that a part was not used or something doesn't fit correctly, and I'll have to start over from the beginning.
For the sake of my son's safety, I think I've finally learned my lesson and now read the instructions first, which is what I suggest doing before rolling any of your clients' IRAs.
If you or your client were thinking of rolling an IRA, you might want to read this discussion first, especially in light of the U.S. Tax Court's recent ruling.
First, remember that this discussion is only referring to indirect IRA-to-IRA rollovers in which funds are paid to the IRA owner and re-deposited within 60 days. We are NOT talking about direct transfers from one IRA provider to another IRA provider. Also, we are NOT talking about 401(k)/403(b) (or other eligible retirement plan)-to-IRA direct rollovers when a retiree elects to move money from a prior employer's plan into his/her IRA.
So, what does Internal Revenue Code (IRC) section 408(d)(3) say about indirect IRA-to-IRA rollovers? Among other things, it states that a taxpayer can process a tax-free 60-day rollover once per 12 months, and if at any time during the 12-month period another rollover is processed, the additional rollover will not receive the tax-free treatment.
Easy enough, right? Well, if you look closer at how this rule is explained in IRS Publication 590 (dated January 5, 2014), and compare that to the recent Tax Court ruling in Bobrow v. Commissioner, you'll see where things get a little messy.
|IRS/Publication 590: Individual Retirement Arrangements||Tax Court Ruling in Bobrow Case|
One Rollover per IRA
|One Rollover per Taxpayer
The Tax Court ruled that you can roll an IRA only once per 12 months from ANY of your IRAs. So, once you roll a portion of IRA1 into IRA2, you cannot roll IRA3 (or any other IRA for that matter) within 12 months.
The IRS has yet to comment or provide insight on how they will address this rule going forward. But one thing is certain, be cautious if you're considering more than one rollover in a 12-month period. If you're one of those people that doesn't like reading instructions, you can always call Retirement Strategies Group at (800)722-2333, ext. 3939, or e-mail us at RSG@PacificLife.com.
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