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New 60-day rollover rules

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Focus on Finance by Wm. Steve Wright

Question:What is the new rule regarding a 60-Day IRA-to-IRA Rollover?

Answer:On March 20, the IRS released Announcement 2014-15 providing new guidance on the once-per-year rollover rule.

The guidance became necessary in light of a recent tax-court decision in the Bobrow case. Going forward, you only are able to do one 60-day IRA-to-IRA rollover in a one-year period — once every 365 days — not a calendar year.

Previously this rollover rule applied to each separate IRA account. No more. All similar IRA accounts now are considered one by the tax court.

A 60-day rollover occurs when you receive a distribution from your IRA account in a check made payable to yourself.  You have 60 days from the date you receive the distribution to redeposit the IRA money into the same or another IRA.  Done properly this distribution and subsequent rollover are non-taxable events.

Running afoul of the once-per-year 60-day rollover rule not only can subject the distribution to income tax and a possible 10 percent penalty if you’re younger than 59 ½, but it also could result in an excess contribution to an IRA, which would trigger a 6 percent penalty for each year the ineligible money remains in the IRA.

The 60-day rule applies to rollovers from one IRA to another IRA, including SEP and Simple IRA, also from one Roth IRA to another Roth IRA. The new rule does not count for rollovers from IRAs to Roth IRAs (a Roth conversion), IRAs to non-IRA employer plans such as 401(k)s and 403(b)s, or rollovers from non-IRA employer plans to IRAs or Roth IRAs.

The best way to move money from one IRA to another is a trustee-to-trustee transfer.  This way the money go directly from one custodian to another without the account owner having an opportunity to use the money. When funds are moved this way there is no 60-day deadline and the once-per-year rule does not apply. IRA owners may make as many direct transfers as they like per year. 

The new rule is effective Jan. 1.

Wm. Steve Wright is managing member of The Wright Legacy Group LLC.

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A panel of local experts with experience and knowledge of this community respond to questions about 401(k)s, 403(b)s, annuities, certificates of deposit, home mortgages and/or refinancing, investing in the stock market, financing retirement, reducing income taxes and related topics. Email your questions to: focusonfinance@thenewsenterprise.com or mail to: Melanie Parker, The Wright Legacy Group, LLC, 1104 Julianna Court, Elizabethtown, KY 42701.