Ruling Applies to Indirect RolloversIt should be noted that the rule applies only to indirect rollovers, in which the account holder initiates a distribution from an IRA and receives a check for the distributed amount which is deposited into his or her personal account. It is then up to the individual to redeposit the funds into the new IRA within the allotted 60-day period to avoid possible taxation and penalties on the amount distributed. If individuals want to move money more frequently, they can still use the direct rollover approach — also known as a trustee-to-trustee rollover — anytime without regard for the new once-per-year rule. With a direct rollover, the money goes directly from the former IRA custodian/trustee to the new custodian without the account holder ever touching it. The Tax Court was clear in its ruling that individuals who have more than one IRA may make multiple direct rollovers from the trustee of one IRA to the trustee of another IRA without triggering the one-year limit. Other advantages of a direct rollover include simplicity and continued tax deferral on the full amount of the account holder’s retirement savings. Both the court’s decision and the IRS’s ruling may have an impact in individual investors’ retirement planning decisions. To play it safe, consult with a qualified financial and/or tax advisor before making any IRA moves.
- Source: financial-planning.com, “IRS Issues IRA Rollover Warning,” April 10, 2014.
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