Beware regarding indirect IRA rollovers: the rules have changed.
There are a lot of reasons an investor might want to rollover an IRA. If it’s something you’ve been thinking about, talk with us. There are numerous tax implications that should be considered prior to taking any action.
In general, there are two ways to rollover an IRA. Investors can choose a direct rollover or an indirect rollover.
1. Direct rollovers, which are also known as trustee-to-trustee transfers, are pretty straightforward. The funds move from one custodian to the other and the IRA owner never touches the money.
2. Indirect rollovers are the potential source of trouble. Typically, with an indirect rollover (aka a 60-day rollover), a check is sent to the IRA owner. The owner cashes the check and, as long as he or she deposits the funds in another IRA within 60 days, the assets continue to qualify for special tax treatment.
In the past, IRS rules allowed investors to rollover each IRA they owned once a year. In recent years, some investors tested the limits of indirect IRA rollovers by rolling over multiple IRAs. In essence, they took 60-day personal loans from their qualified accounts. The issue came to court last year:
“In the Bobrow case, the court held that Mr. Bobrow, a tax lawyer, was taking advantage of the 60-day rule for each IRA. He had done a series of rollovers from separate IRAs and had use of his IRA funds for almost six months. The court essentially said, “No more of this nonsense.” Mr. Bobrow lost his case and that changed the interpretation of the once-per-year rule for everyone. The court said that the rule applies to all IRAs, not to each one separately. The IRS agreed and changed the rules in March.”
If you rolled over more than one IRA during 2014, don’t panic. The IRS provided relief for rollovers completed during 2014 when the old rules were thought to apply.
Ron Dickinson, CFP®, CPA, MPA-Tax
* Peak Advisor Alliance is not affiliated with Charles Schwab & Co., Inc.
* Consult your financial professional before making any investment decision.
https://www.investmentnews.com/article/20150104/REG/301049998/2015-resolution-avoid-60-day-rollovers (or go to https://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/01-12-15_InvestmentNews-2015_Resolution-Avoid_60-day_Rollovers-Footnote_5.pdf)