Tax

IRS Further Limits IRA One-Rollover-Per-Year Rule

March 2014
Author:  Robert Conner

Robert Conner

Director

Tax

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In Announcement 2014-15, the IRS confirmed that the Individual Retirement Account (IRA) one-rollover-per-year limit applies on an aggregate basis to all of a taxpayer’s IRAs rather than on an account basis. This announcement clears up previously conflicting guidance and provides transition relief for rollovers occurring before January 1, 2015. Direct transfers from one IRA trustee to another will not be affected by this announcement, as such transfers are not subject to the one-rollover-per-year limitation.

In general, a taxpayer is allowed to exclude an IRA distribution from gross income if the entire amount is subsequently deposited into a qualifying retirement account, i.e., an IRA, individual retirement annuity or retirement plan, within 60 days from when the taxpayer receives the distribution. However, a provision embedded within the Internal Revenue Code limits these nontaxable IRA rollovers to one per year.

IRS Publication 590, Individual Retirement Arrangements (IRAs), provides this limitation is applied on an IRA-by-IRA basis.  However, the Tax Court recently held in Bobrow v. Commissioner that the limitation applies on an aggregate basis to all of an individual’s IRAs, contradicting IRS Publication 590.

Announcement 2014-15 indicates the IRS will begin applying the Tax Court’s interpretation of the rule in Bobrow for distributions occurring after December 31, 2014. Until then, taxpayers have the option to apply the one-rollover-per-year limitation on an individual or aggregate account basis.

To learn more about this announcement, contact your BKD advisor.

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