Published on 6/29/2016
Written by: Stacia Getz
Background of the one-per-year rule
Under the basic rollover rule, you don’t have to include in your gross income any amount distributed to you from an IRA if you deposit the amount into another eligible plan (including an IRA) within 60 days. Internal Revenue Code Section 408(d)(3)(B) limits taxpayers to one IRA-to-IRA rollover in any 12-month period. Proposed Treasury Regulation Section 1.408-4(b)(4)(ii), published in 1981, and IRS Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs) interpreted this limitation as applying on an IRA-by-IRA basis, meaning a rollover from one IRA to another would not affect a rollover involving other IRAs of the same individual. However, the Tax Court held in 2014 that you can’t make a non-taxable rollover from one IRA to another if you have already made a rollover from any of your IRAs in the preceding 1-year period.
Tax consequences of the one-rollover-per-year limit
Beginning in 2015, if you receive a distribution from an IRA of previously untaxed amounts:
Additionally, if you pay the distributed amounts into another (or the same) IRA, the amounts may be:
Direct transfers of IRA money are not limited
This change won’t affect your ability to transfer funds from one IRA trustee directly to another, because this type of transfer isn’t a rollover (Revenue Ruling 78-406, 1978-2 C.B. 157). The one-rollover-per-year rule of Internal Revenue Code Section 408(d)(3)(B) applies only to rollovers.
A “rollover” will take place when the IRA owner receives a check/payout directly from the IRA and then rolls it over into another IRA within the 60-day window. This is different from a “trustee-to-trustee” transfer in which the IRA owner does not receive a check/payout from the IRA as the funds in the IRA move directly from one trustee to another trustee.
Jeff Reeves interviews John Piershale, a wealth adviser, in his article in the Special for USA TODAY. “People that go into banks and credit unions and tend to buy a lot of CDs could have multiple bank IRAs," Piershale said. "It used to be they could go in, walk up in the teller line and get a check from one CD and then take it across the street to a bank that offered a CD with a better yield. And as long as you took it to another bank in 60 days, you're fine."
Under new guidelines, that kind of activity could happen only once a year. Still, that doesn't mean seeking out that higher-yield CD is impossible, just "a bit more complex."