As of the first of this year, IRA owners face a brand new rule, limiting the number of IRA-to-IRA rollovers they can do per year. Whereas there used to be the option of rolling over basically as often as one wished, IRS rules now dictate only one rollover per year—a seemingly minor tweak with some big consequences. Violating this new rule can lead to some truly astronomical fines, so it is certainly a regulation to study up on and abide by.
How Things Have Changed
It’s pretty often that people shift IRA funds through an indirect transfer—that is, closing out an IRA, getting a check with all the proceeds, and putting that money into another IRA. This is still a fair move, assuming you complete the process within the span of 60 days. What’s different, between now and years past, is that you only get to do it once within a 12-month span. This is true regardless of how many IRAs you happen to own.
So basically, the situation is this: If you take money out of your IRA and then put it into another IRA, that’s all fine and good—but you have to wait 365 days before you are allowed to do it again.
What happens if you violate this rule? Sooner or later, you will receive a notice from the IRS, telling you that all your transfers after the first one were illegitimate. You will have to withdraw the money you deposited into those other IRAs. For traditional IRAs, you will be taxed on the entire amount. If you are under 59 ½ years old, you will have to pay a 10 percent early withdrawal fee. And going forward, these funds will no longer enjoy the tax-sheltered advantages associated with IRAs.
Note that there is really no available relief or leniency for this, either; hiring a tax attorney isn’t going to help you. You’ll have to pay up sooner or later.
There is, however, a fairly simple way around all this, and that’s to just do a direct transfer. Trustee-to-trustee transfers are not affected by these new regulations. For those wishing to reallocate some of their IRA savings, this is the shrewdest and safest way to do it. Contact us today to ask about direct IRA transfers.