Interpretation – One-rollover-per-year

Submitted by Brad Hankins on Wed, 2016-11-30 18:24

I’ve done a great deal of research into the new IRA one-rollover-per-year rule recently. I believe the new ruling gives the individual the ability to rollover more than just one IRA in the 60-day rollover period allowed within a 1-year period. See IRS Announcement 2014-32.

The Bobrow v Commissioner ruling was clearly designed to stop the abuse of using multiple IRA’s for sequential loans. It accomplished that simply by allowing only one 60-day rollover period in any 1-year period. I don’t believe it was designed to limit the individual to rolling over just one IRA, but rather to limit them to one 60-day period.

The ruling states that IRA’s would be viewed “collectively” and that the limitation would be applied on an “aggregate” basis. The limit is stated as “one non taxable 60-day rollover within each 1-year period even if the rollovers involved different IRA’s”. It doesn’t refer to the limit as “one IRA” but as one “60-day rollover”.

When addressing an additional distribution, the ruling states that “an individual receiving an IRA distribution cannot rollover any portion of the distribution into an IRA if the individual has received a distribution from any IRA in the preceding 1-year period that was rolled over into an IRA.” The key here is that the first distribution was previously received AND rolled over into an IRA before the second distribution was made.

Assume an individual has no IRA rollover activity in the preceding 1-year period and they act within the same
one 60-day rollover period allowed by the IRS . If the individual takes a distribution from two IRA’s and then rolls them both into one new IRA, I believe both of the rollover criteria would have been met.

In the preceding 1-year period;
1. No IRA rollover activity had occurred
2. No previous distribution had been received that was rolled over into an IRA

This interpretation accomplishes what the IRS wanted in stopping the abuse of sequential loans by allowing only one 60-day period and still allows the individual flexibility to move multiple IRA’s within that same 60-day window without creating substantial unintended tax burdens.

Where am I going wrong?



Submitted by Alan - IRA critic on Thu, 2016-12-01 00:20

  • In your 4th paragraph you quoted from the announcement ” the individual received a distribution from an IRA in the preceding 1 year period that was rolled over into an IRA”. I think you interpret this as meaning that if the prior distribution had not already been rolled over then the later distribution could be rolled over first followed by the first distribution as long as 60 days had not elapsed for either. The announcement could have made it clearer by changing the wording quoted from “was rolled over” to “is rolled over”. The 60 days is immaterial as this is a requirement for all indirect rollovers and does not affect the one rollover limitation which is measured by the date of the distribution, not by the date of the rollover.
  • Note that the tax code never changed, just the IRS interpretation of it.  “””(B) LimitationThis paragraph does not apply to any amount described in subparagraph (A)(i) received by an individual from an individual retirement account or individual retirement annuity if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in that subparagraph from an individual retirement account or an individual retirement annuity which was not includible in his gross income because of the application of this paragraph.”””  Note that here the code states “which was not includable in gross income” due to the rollover. Therefore, the fact that the the rollover of the first distribution in your example had not yet occurred before the second distribution was rolled over only means that once ONE of these distributions is rolled over, the other cannot be.

Submitted by Brad Hankins on Thu, 2016-12-01 02:02

I follow you that once ONE of the distributions was rolled over, the other cannot be. However, I was actually saying that the second distribution would be combined and rolled over simultaneously with the first distribution, not after it.  It seems to me that if no other rollovers had occured in the preceding 1-year period, the first and second distributions would both be allowable because they’d both have been recieved and rolled over simultaneously within the same single 60-day rollover period that is allowed within a 1-year period. Neither distribution would have a rollover occuring before it within the preceding 1-year. This interpretation also fits the idea of the individual’s IRA being treated as an aggregate. I agree that the announcement could have been made clearer.  However, the fact that it does read “was rolled over” and not “is rolled over” changes the meaning all together.  “Was” is past tense.  “Is” is present tense.           If  the criteria “was rolled over” hasn’t occured on the first distribution, then a rollover involving that distribution hasn’t occured yet.  If the second distribution occurs during the same 60 day period and the first distribution hasn’t been rolled over yet, they could be combined and rolled over simultaneously.  That gives rise to the idea that the limit is a 60-day rollover period.    

Submitted by Alan - IRA critic on Thu, 2016-12-01 02:24

  • A rollover is counted by the distribution, not the rollover. Therefore, you could take a distribution and split the rollover dates into several pieces. It was still just one distribution. On the other hand, if you have more than one distribution, even if you combine the rollovers, it was two distributions that were rolled over. If you take more than one distribution on the same day, it is thought that they would only count as one as long as they were from the same IRA account. However, distributions from different IRA accounts on the same date will generate two 1099R forms, and probably would be considered two distributions. Note that the IRS is not particularly active in pursuing violations, probably because they have no authority to waive the restriction in a PLR like they can for a rollover done later than 60 days. The IRS also does not know the dates of distributions, only the year so they cannot tell when a violation occurs without an audit unless there is more than one 1099R issued. Therefore, the IRA custodian has a better chance to detect violations but they cannot control which IRA account a distribution is rolled to. If all violations of this rule were known to the IRS, there would be quite a strong protest. Many people, particularly those who use CD IRAs do not do transfers, they do 60 day rollovers and the banks for the most part do not warn them about this limitation.
  • Here is a link to a Morningstar article about this written by retirement plan expert Natalie Choate in 2014:
  • http://www.morningstar.com/advisor/t/91694282/rollover-rule-change-will-cause-trouble.htm?&ps=9 You may not be able to open it if you are not a subscriber, but perhaps you can google it. She predicted that it would cause real problems assuming enforcement was a priority.

Add new comment

Log in or register to post comments

Sign up to receive The Slott Report each week