Rosen Seymour Shapss Martin & Company LLP

Certified Public Accountants & Profitability Consultants
 
Employee Benefits and Executive Compensation Services Group

 

RSSM ALERT

TOUGHENED ONE-YEAR WAITING PERIOD 

BETWEEN IRA ROLLOVERS

Dear Clients and Friends,

 

We are writing to let you know about an important change in the rules for IRA rollovers, which are transactions that allow you to withdraw cash from one IRA and redeposit it into the same or another IRA account without currently paying taxes ("tax free rollover").  The change does NOT affect trustee to trustee transfers between IRAs; such direct transfers can be made at any time and are tax free.

 

Rollovers are a popular way of moving IRA money around from one investment to another.  They are also a way to get a short-term interest-free loan from your IRA.  An IRA withdrawal is reported on your tax return but is treated as a tax-free transaction if: 

  • You redeposit the amount you withdrew from the IRA back into the same IRA or into another IRA no later than 60 days after the date you withdrew the funds. 
  • You do a tax-free rollover only once a year.  The 1-year waiting period begins on the date you take the distribution, not on the date you roll it back into the same or another IRA.


The new change affects the 1-year waiting period.   For years, the IRS has applied the 1-year waiting period
separately to each IRA you own.  Now, following a recent Tax Court case, the IRS has announced that it will treat all of your IRAs as one IRA for the purpose of determining the 1-year waiting period.  The IRS has indicated that it will not apply this more restrictive interpretation to any rollover that involves a pre-2015 distribution from an IRA.

 

For 2014, if you withdraw funds from one IRA account and roll them over into the same or another IRA account within 60 days, you still have the ability to withdraw funds from other IRA accounts before the end of the year and roll them over within 60 days, tax free.   The 1-year waiting period will still apply to each IRA account separately.  The withdrawals will be tax free as long as you do not withdraw funds from the same IRA twice within the 1-year period. 

 

Beginning in 2015, if you were to make more than one rollover, only the first withdrawal will be considered tax free.   Since all of your IRAs will then be considered one IRA, a second or later withdrawal will violate the 1-year waiting period, and be subject to tax.   A 10% early withdrawal penalty may also apply if you are not 59-1/2 years of age or qualify for an exemption.     If the second withdrawal is rolled over and the amount of the rollover exceeds any allowable IRA contribution you can make for the year, the excess contribution would be subject to a 6% tax unless withdrawn by the due date of the tax return for the year of the attempted rollover.

 

Note that rollovers between ROTH IRAs are subject to the same 60-day rule and 1-year waiting period that apply to rollovers between traditional IRAs.  After 2014, all of your ROTH IRAs will be treated as one ROTH IRA for the purposes of determining the 1-year waiting period.

 

Keep in mind that the new rules do not apply to rollovers from employer qualified retirement plans to IRAs or to conversions from traditional IRAs to ROTH IRAs.   And, as stated earlier, trustee to trustee transfers between IRAs can be made at any time and are always tax free.

 

If you wish to discuss the revised rules or any retirement plan issue, please feel free to contact Avery Neumark at 212-303-1806 or aneumark@rssmcpa.com.

  

  

Sincerely,

  

 

Avery E. Neumark, CPA, JD, LL.M

Partner-in-Charge of Employee Benefits and Executive Compensation
 
Rosen Seymour Shapss Martin & Company LLP