Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
I came across article in Market Watch that states one rollover or distribution per year. New ruling came out in tax court. I was wondering if anyone has heard of this or has more to offer in the way of information? Derf
IRS publications are just "popular writings", they're not legal documents. The law is determined by statute (e.g. the Internal Revenue Code), and by regulations (e.g. IRS regulations) so long as they are consistent with, and authorized by, the statutes.
Usually, the verbiage in the IRS publications are taken straight from the IRS Regs, but this time I cannot find a reg talking about rollovers from IRA-1 to IRA-2, as one finds in Pub 590. (The writer of the MarketWatch article suggested as well that this can be found in the regs.) Maybe I'm just having a bad hair day. http://www.irs.gov/publications/p590/ch01.html#en_US_2013_publink1000230593
The court looked directly at the IRC, specifically 26 USC 408(d)(3)(b). This is the section that limits you to one rollover per year. The court highlighted key words to show that the plain language of the statute restricts an individual to one rollover per year, not an IRA to one rollover per year. Thus, a second rollover by husband was taxable.The court highlighted the relevant section of the IRC as follows:
An individual may not receive a nontaxable rollover from "an individual retirement account or individual retirement annuity" if that individual has already received a tax-free rollover within the past year "from an individual retirement account or an individual retirement annuity". (Emphasis added.) In other words, a taxpayer who maintains multiple IRAs may not make a rollover contribution from each IRA within one year.
There was also a rollover by the wife. This was disqualified as well, but not because her husband had done a 60 day rollover. Rather, it was disqualified because she took 61 days to do it.
This year I closed out a QRP-PSP (sent in my 2014 final and short year 5500-EZ) and put the money into a rollover IRA with the same institution. They handled the paperwork and direct transfer.
I also have a separate Traditional IRA with the same institution. I am planning on converting some of this TIRA to a Roth IRA, also this year.
Mona, I believe if you take a "distribution" from a Roth IRA and then want to "roll over" some or all of this distribution back into a Roth (within 60 days of settlement) you need to follow the same rules. An IRA "transfer" doesn't go through your hands and is always a preferable way to execute movement of IRA monies. After 60 days a roll over becomes a distribution. At least with the roth, you can take a distribution (roll over) equal to your pre-tax contribution without additional tax consequences or penalties.
My daughter "rolled over" her 403(b) 7 IRA into a Self directed IRA with TIAA CREF because she separated service from her employer. I believe because the IRA account "type" changed (from a 403(b) 7 to a self directed IRA) it was classified as a roll over. Then, she completed a "trustee to trustee transfer" to change institutions (TIAA CREF to Vangaurd). This was a transfer because it remained a self direct IRA throughout the transaction. Finally when this transaction settles she woud like to make a one time IRA to HSA transfer from her self direct IRA (Vangaurd) to a newly opened HSA (Health Savings Account) IRA with (The Bruce Fund).
Lots of moving parts so I hope we have followed things properly.
In neither case would funds go through my hands. I recently closed out a Qualified Retirement Plan - Profit sharing Plan from a small company that I had owned. This QRP-PSP was with Charles Schwab. I opened a rollover IRA also with Schwab and they transferred the mutual funds directly from the QRP-PSP to the rollover IRA. The closing of the QRP, the opening of the rollover IRA, and the transfer all took place last month.
For a number of years, I have had a separate Traditional IRA and Roth IRA with Schwab. Each year I Roth some of these monies (Traditional directly to Roth) up to a 25% tax bracket. My plan is to do the same in 2014.
My question is, do these two different and separate transactions relate in any way to the article, where I need to be concerned because they both will occur in a 12 month period?
This ruling doesn't affect what are known as direct rollovers or transfers, where you never get a payment to you to be deposited back within 60 days. It is the latter that is being affected.
Seems like they are cracking down on a loophole that allowed people to have a long term loan from pre tax money. In theory, if you have 6+ IRAs, you can technically have pre tax use of part of your money for as long as you want by rolling each IRA in turn.
The way they did this because their own interpretation in the publication seemed to allow this loophole is questionable, but I do wonder how many such multiple rollovers happen (as opposed to direct transfers) in a year that are not meant to exploit that loophole.
Folks at fairmark.com can answer questions like those Mona (and possibly bee, if it was a question) asked. Enrolled agents and tax attorneys, among others, volunteer time to answer questions.
Thanks cman for the additional explanation and the added word - "direct" - to the term rollover. Precise descriptors are impotant when you don't complete these transaction everyday.
Ted thanks for posting the article. I just looked back & see they have updated the piece. That update paints the picture a little more clear. Thanks to those that posted info or questions. Have a good week, Derf
Comments
Regards,
Ted
http://www.marketwatch.com/story/ira-rollover-ruling-stuns-advisers-and-savers-2014-04-04/print?guid=FB7FC618-BA7E-11E3-89FF-00212803FAD6
IRS publications are just "popular writings", they're not legal documents. The law is determined by statute (e.g. the Internal Revenue Code), and by regulations (e.g. IRS regulations) so long as they are consistent with, and authorized by, the statutes.
Usually, the verbiage in the IRS publications are taken straight from the IRS Regs, but this time I cannot find a reg talking about rollovers from IRA-1 to IRA-2, as one finds in Pub 590. (The writer of the MarketWatch article suggested as well that this can be found in the regs.) Maybe I'm just having a bad hair day.
http://www.irs.gov/publications/p590/ch01.html#en_US_2013_publink1000230593
The court looked directly at the IRC, specifically 26 USC 408(d)(3)(b). This is the section that limits you to one rollover per year. The court highlighted key words to show that the plain language of the statute restricts an individual to one rollover per year, not an IRA to one rollover per year. Thus, a second rollover by husband was taxable.The court highlighted the relevant section of the IRC as follows: There was also a rollover by the wife. This was disqualified as well, but not because her husband had done a 60 day rollover. Rather, it was disqualified because she took 61 days to do it.
The first few comments on the article, especially ones by M C Crockett and E Peters are worth reading. Here's the non-print (i.e. "regular") version of the story, so you can see the comments:
http://www.marketwatch.com/story/ira-rollover-ruling-stuns-advisers-and-savers-2014-04-04
I'm glad it does to you;-)
This year I closed out a QRP-PSP (sent in my 2014 final and short year 5500-EZ) and put the money into a rollover IRA with the same institution. They handled the paperwork and direct transfer.
I also have a separate Traditional IRA with the same institution. I am planning on converting some of this TIRA to a Roth IRA, also this year.
Does this recent ruling have any affect my plan?
Thanks.
Mona
My daughter "rolled over" her 403(b) 7 IRA into a Self directed IRA with TIAA CREF because she separated service from her employer. I believe because the IRA account "type" changed (from a 403(b) 7 to a self directed IRA) it was classified as a roll over. Then, she completed a "trustee to trustee transfer" to change institutions (TIAA CREF to Vangaurd). This was a transfer because it remained a self direct IRA throughout the transaction. Finally when this transaction settles she woud like to make a one time IRA to HSA transfer from her self direct IRA (Vangaurd) to a newly opened HSA (Health Savings Account) IRA with (The Bruce Fund).
Lots of moving parts so I hope we have followed things properly.
Any comments?
Possibly I was not clear.
In neither case would funds go through my hands. I recently closed out a Qualified Retirement Plan - Profit sharing Plan from a small company that I had owned. This QRP-PSP was with Charles Schwab. I opened a rollover IRA also with Schwab and they transferred the mutual funds directly from the QRP-PSP to the rollover IRA. The closing of the QRP, the opening of the rollover IRA, and the transfer all took place last month.
For a number of years, I have had a separate Traditional IRA and Roth IRA with Schwab. Each year I Roth some of these monies (Traditional directly to Roth) up to a 25% tax bracket. My plan is to do the same in 2014.
My question is, do these two different and separate transactions relate in any way to the article, where I need to be concerned because they both will occur in a 12 month period?
Mona
Seems like they are cracking down on a loophole that allowed people to have a long term loan from pre tax money. In theory, if you have 6+ IRAs, you can technically have pre tax use of part of your money for as long as you want by rolling each IRA in turn.
The way they did this because their own interpretation in the publication seemed to allow this loophole is questionable, but I do wonder how many such multiple rollovers happen (as opposed to direct transfers) in a year that are not meant to exploit that loophole.
That update paints the picture a little more clear. Thanks to those that posted info or questions.
Have a good week, Derf