The Internal Revenue Service has announced a series of new rules directed at IRA rollovers, including Self-Directed IRA rollovers, effective beginning January 1, 2015.
In a nutshell, you can only make one rollover in a 12 month period starting with the New Year. It doesn’t matter how many IRA accounts you own. The IRS stated that “The limit will apply by aggregating all of an individual’s IRAs, including SEP and SIMPLE IRAs as well as traditional and Roth IRAs, effectively treating them as one IRA for purposes of the limit.”
Applicability to Self-Directed IRAs
The new rules have precisely the same effect on Self-Directed IRAs as they do to other more conventional IRA accounts. Both self-directed and conventional investors have to abide by the same rules. Only the assets and the level of direct control is different with Self-Directed IRAs.
What the New Guidelines do Not Do
It’s important to note that there’s still no restriction on the number of trustee-to-trustee transfers. You can take a given retirement account and transfer it from trustee-to-trustee as often as you like, without tax consequences. The IRS does not define these types of transactions as “rollovers.
Furthermore, the new guidelines do not limit the number of times you can do a “conversion” from a traditional to a Roth IRA.
The IRS provides this example:
“If you have three Traditional IRAs, IRA-1, IRA-2 and IRA-3, and in 2014 you took a distribution from IRA-1 and rolled it into IRA-2, you could not roll over a distribution from IRA-1 or IRA-2 within a year of the 2014 distribution but you could roll over a distribution from IRA-3. This transition rule applies only to 2014 distributions and only if different IRAs are involved. So if you took a distribution from IRA-1 on January 1, 2015, and rolled it over into IRA-2 the same day, you could not roll over any other 2015 IRA distribution (unless it’s a conversion).”
The change goes back to a Tax Court ruling in Bobrow V. Commissioner, T.C. Memo 2014-21. Prior to the ruling, the IRS was generally permissive when it came to IRA rollovers. While the tax code limited taxpayers to one IRA-to-IRA rollover in any single 12-month period, the IRS generally applied this rule on an IRA-by-IRA basis. That is, they allowed you to roll over each IRA once in each 12-month period. But the Bobrow ruling forced the IRS to interpret the law more strictly, thereby restricting IRA owners’ options.
Implications for Self-Directed IRA Owners
According to the IRS, starting on January 1, 2015, if you receive a distribution from an IRA of previously untaxed amounts:
- you must include the amounts in gross income if you made an IRA-to-IRA rollover in the preceding 12 months (unless the transition rule above applies), and
- you may be subject to the 10% early withdrawal tax on the amounts you include in gross income.
Additionally, if you pay the distributed amounts into another (or the same) IRA, the amounts may be:
taxed at 6% per year as long as they remain in the IRA.
For more information about IRA rollovers and trustee-to-trustee transfers, call us at 866-7500-IRA(472), or visit us online at www.americanira.com.
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