In recent tax court case Bobrow v. Commissioner, the court determined that the IRS regulation allowing one, 60-day IRA rollover per year now applies on a per-taxpayer basis instead of a per-IRA basis. This could prompt a shift in your IRA approach.
The ruling affects taxpayers who withdraw money out of an IRA, and then re-deposit it within 60 days into another IRA. Previous guidance such as IRS Proposed Regulations and IRS Publication 590 provided that taxpayers could rollover each IRA annually. The practice is not uncommon as many taxpayers own, and annually rollover, more than one.
After Bobrow, only one IRA rollover is allowed per year. This new rule applies to transfers occurring January 1, 2015 and after.
The impact
The change presents a practical problem for many IRA owners. To generate higher returns, it’s not uncommon for taxpayers to withdraw funds from an IRA in one bank, particularly CD money, and then drive to another bank to redeposit them into another IRA. And if you owned, say, three IRAs, all three were likely rolled-over like this, annually.
But going forward, any rollovers beyond the allowable one-per-year will be considered taxable distributions from the IRA.
Interestingly, the Bobrow ruling will have less impact on IRA brokerage accounts, as those funds are typically moved via trustee-to-trustee transfer, without taxpayers touching the money. Trustee-to-trustee transfers are not limited by the new rule.
Adjusting the strategy
The IRA rollover rule will prompt many people to restructure their IRA investments and timing strategy. Smart taxpayers will want to continue to generate higher returns while avoiding the premature taxation of IRA funds.
When you’re looking to engage a professional to advise you on this, put a priority on specialists who understand the complexity of IRS regulations. At CSH we’ve built a team of accountants who are both personal wealth specialists and tax professionals. We have no investment products to sell you, so we’re free to simply guide you in positioning yourself for growth.
