IRA rollover changes

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Published April 29, 2014

| Consumer Reports

A recent U.S. Tax Court ruling has significantly changed the way individuals, financial advisers, and even the Internal Revenue Service will view IRA rollovers in the future.

Before the February 2014 ruling, the IRS and most advisers viewed the rules pertaining to IRA rollovers, as detailed in IRS Publication 590, as applying to each account. An individiual with, for example, three IRAs could perform one rollover of each account every year. As long as the rollover was completed within 60 days, the funds weren't taxable.

The court has now concluded that if you've made any non-taxable IRA rollover in the preceding 1-year period, any other rollovers may be subject to taxes. The IRS plans to follow the court's interpretation. But as it was a decision neither advisers or possibly even the IRS were prepared for, taxpayers will have at least until Jan. 1, 2015, before the changes are implemented.

Changing jobs? 401(k) rollovers can be cumbersome and costly.  

The new rule interpretation may end up frustrating those who may want to do some financial housekeeping by consolidating their multiple IRA accounts with one trustee (such as a brokerage or a bank), as the multiple rollovers could end up being taxable events.

Fortunately, individuals who want to consolidate can still make unlimited IRA transfers. An IRA transfer differs from a rollover in that the funds from the original IRA are never distributed to the individual–the transaction is from the old trustee to the new one. Most trustees receiving IRA transfers are more than happy to guide you through the process. 

–Chris Horymski


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