Summit Financial Group Newsletter

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26

Recent Changes to IRA Rollover Rules

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The IRS recently issued new guidance about the rules governing rollovers* from Individual Retirement Accounts (IRAs)[1]. The new regulations state that IRA owners will only be allowed one 60-day rollover per 12-month period, regardless of how many IRAs they own. Prior to this update, the IRS had permitted taxpayers to take one rollover every year for each of their IRAs.

The new rule will go into effect on January 1, 2015, giving clients and advisors time to adapt to the change. Any rollovers that take place before the beginning of next year will be grandfathered in under the old interpretation and be unaffected by the change.

What Are the Tax Consequences of the New Rule?

Under the new rules, you’ll be allowed to treat a single cash distribution from any of your IRAs as a 60-day rollover every 12 months. For example, if you take a distribution from your Traditional IRA on January 10th next year, you will have 60 days to roll it over to another IRA. The day you take your distribution, the clock starts ticking and you won’t be eligible for another rollover for 12 months.

If you take another distribution from your IRA before the 12 months is up, it will be treated as a taxable event. You’ll have to report the distribution as income and pay taxes at your ordinary rate. If you’re under 59 ½, you may be subject to a 10 percent early withdrawal penalty. If you try to return the money to an IRA, the IRS will treat it as an excess contribution and levy a 6 percent tax on the assets as long as they remain in the IRA.

Are There Any Exceptions to the New Rollover Rule?

According to the IRS[2], the once-per-year limit does not apply to:

  • Roth conversions from traditional IRAs

  • Trustee-to-trustee transfers between IRAs

  • IRA-to-retirement plan rollovers

  • Retirement plan-to-IRA rollovers

  • Plan-to-plan rollovers

In plain English, rollovers that go directly from one retirement account to another, without passing through your hands, do not count against your annual allotment. However, any checks or wires that are made out to you personally (and not the trustee of your retirement account) will be subject to the 12-month rollover limit.

While most investors will not be unduly affected by this rule change, we can learn an important lesson from the situation: the tax code is constantly being updated and investors can expect new changes in the future. As advisors, one of our most important duties is staying abreast of the shifting regulatory environment and making changes to our clients’ strategies where necessary.

If you are concerned about how your retirement strategies may be affected by the new rules regarding rollovers or have any questions about the information included in this letter, please contact me. I am happy to be of service to you.

*Rollovers are generic layman’s terms for moving from one retirement account to another. There are different kinds of rollovers and some are actually transfers. That is why there are some exceptions to the rule.


These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of the named representative, Broker Dealer, or Investment Advisor, and should not be construed as investment advice. Neither the named representative nor the named Broker dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

We have not independently verified the information available through the following links. The links are provided to you as a matter of interest. We make no claim as to their accuracy or reliability.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

[1] http://www.irs.gov/Retirement-Plans/IRA-One-Rollover-Per-Year-Rule

[2] http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Rollovers-of-Retirement-Plan-and-IRA-

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