A Notice for Providence Association Members regarding IRA Rollover Rules
ONE PER YEAR LIMIT ON IRA TO IRA (indirect) ROLLOVERS
The following notice is for informational purposes only. Please review the actual IRS rules changes about IRA indirect rollovers and consult with your tax advisor or counsel.
Indirect Rollover Rules Change:
An indirect rollover allows you to withdraw money from your IRA by receiving a check, payable to you, that you can then deposit into the same or another IRA within 60 days. The new law limits the number of indirect IRA-to–IRA rollovers an individual can make to one such rollover within a one-year period (365 days). According to the new IRS interpretation of this rule, you cannot make a tax-free IRA-to-IRA rollover if you have already made a rollover from any of your IRAs within the prior one-year period, regardless of the number of IRAs you own. (Previously the IRS interpreted the one-rollover-per-year rule as applying separately to each IRA an individual held.) Moreover, this one rollover per 365 days rule applies to every type of IRA (traditional, Roth, SEP and SIMPLE). Providence has revised its Traditional IRA, SEP-IRA, SIMPLE IRA and ROTH IRA Disclosure Statement to reflect the new interpretation of the IRA rollover limit. See enclosed: “Information Affecting Your IRA and Your Roth IRA for 2015 & 2014” is enclosed. It is also posted on our website: www.provassn.com
Questions and notes about this notice:
When was the “one rollover per 365 day” rule enforced?
The IRS enforced the new interpretation January 1, 2015.
What is the difference between an indirect rollover and an IRA asset transfer?
In an indirect rollover, the proceeds of your IRA are made payable to you and you have 60 days to deposit the proceeds into another (or the same) IRA. An asset transfer moves the proceeds of your IRA directly from one IRA trustee/custodian to another.
Is the number of direct IRA asset trustee-to-trustee transfers limited?
No. If you are considering moving your IRA assets between financial institutions, consider an asset transfer (with appropriate paperwork and instructions), since there are no limits on the number of asset transfers an individual can complete in a year. In a direct transfer, the transfer check, through appropriate paperwork and instructions, is mailed directly from one financial institution to another.
What about direct (trustee/custodian to trustee/custodian) rollovers from and into employer sponsored plans? Direct rollovers from an employer-sponsored plan to an IRA (and vice-versa) are also not subject to the new limit.
Are conversions from traditional IRAs to Roth IRAs restricted?
No.
Does the one-rollover-per-year rule apply to all types of rollovers?
No. It applies only to indirect (60 day) IRA to IRA rollovers; this we explained in previous answers. However, be mindful of the fact all IRAs (traditional, SEP, SIMPLE, and Roth) will be aggregated for purposes of the rule. Thus, an indirect rollover between an individual’s one style (say Roths, for instance) of IRA would preclude a separate rollover within the same one-year period between, from, or to any and all of the individual’s other IRAs (Roth, traditional, SEP or SIMPLE).
What happens if someone “rolls over” more than one IRA distribution into another of their IRA’s after January 1, 2015?
If a person violates the one-rollover-per-year rule, the funds are treated as a taxable distribution to the IRA owner and applied to the receiving IRA as a regular contribution, as opposed to a rollover contribution. This may also result in an excess contribution for the respective tax year. IRA owners could then be subject to a 6% penalty on the excess amounts (any amounts above their contribution limits) for each year until removed. Any excess amount would need to be removed through the IRA excess contribution removal process. Also, those violation amounts can never be treated as a rollover contribution back into an IRA. For information on the risks, please refer to your tax adviser.
Note:
Prior to making any rollovers, however, we recommend you speak with a tax advisor. Indeed, if you own IRAs of any sort, you might want to ask a tax adviser about this rule change.
If IRA(of all types) owners move funds via direct trustee financial institution to trustee financial institution transfers, using the correct paperwork, they avoid the risks associated with this rules change.