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IRS Clarifies Application of One-Per-Year Limit on IRA Rollovers, Allows Owners of Multiple IRAs a Fresh Start in 2015

posted Nov 12, 2014, 9:56 PM by Zaher Fallahi   [ updated Nov 13, 2014, 10:22 PM ]

The Internal Revenue Service today issued guidance clarifying the effect a 2014 individual retirement arrangement (IRA) rollover has on the one-per-year limit imposed by the Internal Revenue Code on tax-free rollovers between IRAs.

This clarification relates to a change announced earlier in 2014, in the way the statutory one-per-year limit applies to rollovers between IRAs. The change in the application of the one-per-year limit reflects a new interpretation by the U.S. Tax Court early this year. Before 2015, the one-per-year limit applies only on an IRA-by-IRA basis (that is, only to rollovers involving the same IRAs). Beginning in 2015, the limit will apply by aggregating an individual’s all IRAs, effectively treating them as if they were the same IRA for purposes of applying the limit.

In Announcement 2014-32, posted today, the IRS made clear that the new interpretation will apply beginning Jan. 1, 2015, and said that a distribution from an IRA received during 2014 and properly rolled over to another IRA, will not be impacted on any distributions and rollovers during 2015 involving any other IRAs owned by the same individual. This will give IRA owners a fresh start in 2015 when applying the one-per-year rollover limit to multiple IRAs.

Although eligible IRA distributions received on or after Jan. 1, 2015 and properly rolled over to another IRA will still get tax-free treatment, subsequent will not get tax-free rollover treatment. As today’s guidance makes clear, a rollover between an individual’s Roth IRAs will preclude a separate tax-free rollover within the 1-year period between the individual’s traditional IRAs, and vice versa. 

However, the Roth conversions (rollovers from traditional IRAs to Roth IRAs), rollovers between qualified plans and IRAs, and trustee-to-trustee transfers--direct transfers of assets from one IRA trustee to another will not be impacted by the new one-per-year limit and are disregarded in applying the limit to other rollovers.

IRA trustees are encouraged to offer IRA owners requesting distributions 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.

Zaher Fallahi, CPA, is a California Tax CPA firm, practices as Los Angeles Dental CPA and Orange County Dental CPA, and has specialized in providing tax and accounting services to dentists, physicians and other medical and health care professionals in Orange County and Los Angeles since 1992. Telephones: LA (310) 719-1040 and Orange County (714) 546-4272, e-mail: [email protected]