IRS Provides Guidance for Applying the One-IRA-Rollover-Per-Year Rule

Ann. 2014-32, 2014-48 IRB; IR 2014-107

In an Announcement and an accompanying News Release, IRS has issued several additional rules to flesh out the application of the one-IRA-rollover-per-year rule that it announced earlier this year would go into effect on Jan. 1, 2015. One such rule is a transition rule for distributions made in 2015.

Background.Code Sec. 408(d)(3)(A)(i) provides generally that any amount distributed from an IRA will not be included in the gross income of the distributee to the extent the amount is paid into an IRA for the benefit of the distributee no later than 60 days after the distributee receives the distribution (often referred to as a "60-day rollover"). Code Sec. 408(d)(3)(B) provides that an individual is permitted to make only one nontaxable 60-day rollover between IRAs in any 1-year period.

Prop Reg § 1.408-4(b)(4)(ii) and IRS Publication 590, Individual Retirement Arrangements (IRAs), had provided that the one-rollover-per-year limitation was applied on an IRA-by-IRA basis. However, the Tax Court in Bobrow, TC Memo 2014-21TC Memo 2014-21 (Weekly Alert  33 02/06/2014), held that the limitation applies on an aggregate basis, meaning that an individual could not make more than one nontaxable 60-day rollover within each 1-year period even if the rollovers involved different IRAs.

In Ann. 2014-15, 2014-16 IRB (Weekly Alert  12 03/27/2014), IRS indicated that it anticipated following the interpretation of Code Sec. 408(d)(3)(B) in Bobrow, and accordingly that it would withdraw the proposed reg and revise Publication 590 to the extent needed to follow that interpretation, but that it would not apply the Bobrow interpretation of Code Sec. 408(d)(3)(B) before 2015. Consistent with Ann. 2014-15, Prop Reg § 1.408-4(b)(4)(ii) was withdrawn on July 11, 2014. (See Weekly Alert  1 07/17/2014.) IRS has said that subsequent relevant IRS publications (including new Publication 590-A, "Contributions to Individual Retirement Arrangements (IRAs)") will reflect the Bobrow interpretation of Code Sec. 408(d)(3)(B).

IRS issues new guidance.IRS has now issued a series of new rules that flesh out the changes contained in Ann. 2014-15.

An individual receiving an IRA distribution on or after Jan. 1, 2015 cannot roll over any portion of the distribution into an IRA if the individual has received a distribution from any IRA in the preceding 1-year period that was rolled over into an IRA. However, as a transition rule for distributions in 2015, a distribution occurring in 2014 that was rolled over is disregarded for purposes of determining whether a 2015 distribution can be rolled over under Code Sec. 408(d)(3)(A)(i), provided that the 2015 distribution is from a different IRA that neither made nor received the 2014 distribution. In other words, the Bobrow aggregation rule, which takes into account all distributions and rollovers among an individual's IRAs, will apply to distributions from different IRAs only if each of the distributions occurs after 2014.

RIA observation: Thus, a distribution received in late 2014 can be rolled over in 2015 as long as it's done within 60 days without preventing a 2015 distribution from a different IRA from being rolled over.

A rollover from a traditional IRA to a Roth IRA (a "conversion") is not subject to the one-rollover-per-year limitation, and such a rollover is disregarded in applying the one-rollover-per-year limitation to other rollovers. However, a rollover between an individual's Roth IRAs would preclude a separate rollover within the 1-year period between the individual's traditional IRAs, and vice versa. (Here, the term "traditional IRA" includes a simplified employee pension described in Code Sec. 408(k) and a SIMPLE IRA described in Code Sec. 408(p).)

The one-rollover-per-year limitation also does not apply to a rollover to or from a qualified plan, nor does it apply to trustee-to-trustee transfers. And such a rollover is disregarded in applying the one-rollover-per-year limitation to other rollovers.

IRS encourages IRA trustees to offer IRA owners requesting a distribution for rollover the option of a trustee-to-trustee transfer from one IRA to another IRA. IRA trustees can accomplish a trustee-to-trustee transfer by transferring amounts directly from one IRA to another or by providing the IRA owner with a check made payable to the receiving IRA trustee.

References: For IRA rollovers, see FTC 2d/FIN  H-11,460 et seq.; United States Tax Reporter  4084.03 ; TaxDesk 144,055 .