Don’t Mess with the IRS—Proceed Carefully with IRA-to-IRA RolloversSubmitted by Financial Planning Hawaii on May 1st, 2014
In a surprise decision, the U.S. Tax Court recently ruled that the permissible once per year 60-day IRA rollover rule is intended by the IRS to be applied not on a per IRA basis but rather to all IRAs owned by an account holder. In doing so, the court held that IRA holders who repay IRA rollover distributions from one IRA with distribution proceeds from another IRA, even if it is held a different institution, may be deemed to be in violation of the spirit and intent of the IRS’ rollover rule and, thus, subject to tax and possible penalties. What makes this ruling especially surprising is that IRS Publication 590 specifically allows for multiple IRA rollovers among different IRAs within the same year. However, in its decision, the Tax Court ruled that IRS Publication 590 is in conflict with a strict interpretation of the actual Internal Revenue Service Code, and that, in instances where such conflicts arise, the higher level document shall prevail. This would be bad news for thousands of IRA holders who relied on the IRS’ own publication 590 for guidance. Fortunately, the IRS has intimated that it intends to enforce the rule only on rollovers processed after January 1, 2015, effectively grandfathering past IRA rollover rule transgressions.
For more on this topic see the following article links:
WSJ MarketWatch - IRA rollover ruling stuns advisers and savers
Ed Slott Report – The 60-Day IRA Rollover Cheat Sheet – What Counts and What Doesn’t