IRA Rollover Tax Break Running Out Soon

Save-retire-lightbulb-shutterstock_3134255-sm-200x131The IRS is taking a tougher stance on the once-a-year rule for IRA rollovers in 2015. Generally you don’t have to pay any tax when you roll over funds between IRAs, as long as the rollover is completed within 60 days.  You can do whatever you wish with the money during this 60-day period. Furthermore, it doesn’t matter if you put the funds back in the same IRA or in a different one.  But the tax law limits such rollovers to one a year.

Previously, the IRS stated that this once-a-year rule applied separatelyto each IRA.  However, in the 2014 decision, the Tax Court extended the restriction to all IRAs owned by the same taxpayer. The IRS gave taxpayers until January 1, 2015 to accommodate multiple IRA rollovers involving different IRAs.

And now a new transitional rule provides even more leeway.  An IRA distribution received in 2014 won’t be taxable under the new interpretation of the rule if the 60-day requirement is satisfied in 2015. Time is running out, however, you might still squeeze under the wire.  If you took a payout on December 1, 2014 that will violate the new restriction, you still have until January 30, 2015 to rollover the funds tax-free as long as you observe all the prior rules.

The IRS also provided the following guidance:

  • A conversion from a traditional IRA to a Roth IRA is not subject to the once-a-year-rule (although it does apply to rollovers between Roth IRAs).
  • A rollover to or from a qualified retirement plan, like a 401(k) is not subject to the once-a-year rule.
  • A trustee-to-trustee transfer from one IRA to another is not subject to the once-a-year rule.  Note:  Technically, such a transfer is not a rollover.
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