Recently, the IRS announced a new rule that limits the number of individual retirement account rollovers, or, IRA rollovers, that an individual may complete during any 12-month period.
One way an individual may make a tax-free transfer between two IRAs is by taking a distribution from one IRA and then depositing the distributed amount into a second IRA within 60 days (a “rollover”). The tax law provides, however, that individuals are allowed to complete only one rollover per year.
Until recently, the IRS had interpreted this one-year rule as applying to each IRA individually, rather than to all of an individual’s IRAs collectively. In other words, an individual could complete any number of IRA rollovers in a 12-month period, as long as no single IRA was used more than once.
However, the U.S. Tax Court recently concluded that the IRS’s interpretation was incorrect and that the limitation applies on an aggregate basis. Shortly thereafter, the IRS announced that it would follow the Tax Court’s decision. However, the IRS also announced that it will not apply the new rule to distributions made before January 1, 2015.
Taxpayers will continue to have the ability to have IRA funds transferred directly from one IRA trustee to another IRA trustee tax free without restriction. Trustee-to-trustee transfers are not subject to the one-IRA-rollover-per-year rule.