IRA Rollovers – Important Changes in 2015
~ By Herb White, MBA, CFP ~
Here’s an important new IRS ruling related to IRA rollovers. Previously the rule was that you could roll over an IRA or even multiple IRAs from separate accounts once a year without any tax penalty. Now the “once a year” rule applies to all of your IRAs, not to each separately.
Note, however, that the rule applies only to indirect rollovers, not to direct rollovers (trustee-to-trustee transfers). If you want to move money more frequently than once a year, you should consider the direct rollover approach. An indirect rollover is one in which you initiate a distribution from an IRA, receive a check and then deposit it into your personal account.
As always, you have 60 days to redeposit the funds into a new IRA to avoid possible taxation and penalties on the amount distributed. With the new rule, you will have to wait 365 days from the day you made that indirect rollover to make a new one without penalty.
You also should take this ruling into consideration as you manage and plan your finances going forward. Retirement planning, for instance, often involves the timing of IRA distributions.
Additional facts about the new IRA ruling
A distribution from an IRA received during 2014 and properly rolled over (normally within 60 days) to another IRA will have no impact on any distributions and rollovers during 2015 involving any other IRAs owned by the same individual. This will give you as an IRA owner a fresh start in 2015 when applying the one-per-year rollover limit to multiple IRAs.
According to the IRS, although an eligible IRA distribution received on or after Jan. 1, 2015 and properly rolled over to another IRA will still get tax-free treatment, all subsequent distributions from any of the individual’s IRAs (including traditional and Roth IRAs) received within one year (365 days) after that distribution will not get tax-free rollover treatment. Also, a rollover between an individual’s Roth IRAs will preclude a separate tax-free rollover within the one-year period between the individual’s traditional IRAs, and vice versa.Ê
As before, Roth conversions (rollovers from traditional IRAs to Roth IRAs), rollovers between qualified plans and IRAs, and trustee-to-trustee transfersÑthat is, direct transfers of assets from one IRA trustee to anotherÑare not subject to the one-per-year limit and are disregarded in applying the limit to other rollovers.
Keep in mind that you still have the option of a trustee-to-trustee transfer from one IRA to another. This type of transfer can be done by transferring amounts directly from one IRA to another or by providing you with a check made payable to the receiving IRA trustee, rather than to you.
This new ruling shouldn’t keep you from opening an IRA, which has so many benefits. In 2015, with an IRA you still have T.D.I.C. — tax deferability, deductibility, investment flexibility and convertibility. For example, you still get tax savings. You can keep adding to your traditional IRA without paying taxes until you withdraw the money, typically when you retire. You also can make contributions annually. Depending on your income, you can deduct your contributions to your standard IRA from your income taxes. Also, compared to an employer-sponsored retirement plan, you select the investments for your IRA on your own or with the help of a financial advisor. Additionally, rolling over your employer’s 401(k) into an IRA is easy, and it also is easy to switch from a traditional IRA to a Roth IRA.
Be sure to consult your financial advisor for help on IRA rollovers and their impact on your financial plans.
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Provided courtesy of Herb White, MBA, CFPª, a CERTIFIED FINANCIAL PLANNERª with Life Certain Wealth Strategies, 8400 E Prentice Ave, #715 Greenwood Village, Colorado, www.lifecertain.com, (303) 793-3999. Securities and investment advisory services offered through Woodbury Financial Services, Inc. Member FINRA, SIPC and Registered Investment Advisor. Life Certain Wealth Strategies and Woodbury Financial Services are not affiliated entities. This information is being provided strictly as a courtesy. The content is not intended to provide specific advice or recommendations for any individual situation or product. The opinions of the author do not reflect those of Woodbury Financial Services, Inc. or its affiliates. This content has not been reviewed by the Broker/Dealer or its affiliates for completeness or accuracy.