“I’m hesitant to move my IRA because I can only do one rollover per year.”

This matter has come up a few times as we help clients decide whether to move retirement account money around. 

Last year, the IRS issued Announcement 2014-15, which states that beginning in 2015, for a rollover to be tax-free, no other rollover can have been made from any of the taxpayer’s other IRAs within the prior 365 days. 

It used to be you could use multiple IRA accounts to string together several 60-day periods. That was a way to get an interest-free loan of sorts from IRA funds. 

Now, after the tax court ruling in Bobrow v. Commissioner, 2014-15 basically makes the once per year restriction a per taxpayer issue, not the per account issue people thought it was. The IRS declared it would wait until 2015 to enforce this so that taxpayers and IRA custodians could adapt and the IRS could update Publication 590.

For us, the ruling is almost a non-event. Why? Technically, the ruling only applies to rollovers in which the clients receive a check payable to them and redeposit the funds to an IRA within 60 days. We rarely move assets in this way.

Instead, we use trustee-to-trustee transfers or “direct rollovers,” wherein an IRA custodian sends the money directly to another IRA without the taxpayer taking possession. The custodian of the original IRA may send the check to the client, but the check is payable to “XYZ Company FBO John Doe IRA,” not “John Doe.”

We do this for several reasons. There is no risk that the funds won’t get into the new IRA in time. The transfer is generally faster because the client need not cash the check then write a new one that must also clear. Also, no 1099-Rs are generated, so there is no chance we will need to explain to the IRS why line 15a is so much larger than 15b on the 1040. There won’t be any entry there at all to audit.

Neither the Bobrow case nor 2014-15 apply to “trustee-to-trustee transfers,” “direct transfers” or “direct rollovers.” There is no limit to the number of such transaction types that can occur in any one year. It is common for people to use the term “rollover” to refer to any transfer of retirement account assets. Misunderstanding this is, well, understandable. To try to reduce confusion among our clients and prospects, we are trying to only use the term “transfer” and not “rollover,” except in the few instances where the 60-day rule comes into play. 

Financial Planners Can Bring Clarity