One Rollover In a 12-month Period
As sure as the sun rises every morning you stand a good chance of encountering a taxpayer who has violated the one rollover a year rule for IRAs. This rule is actually the result of a 2014 tax court case, Bobrow vs. Commissioner
(TC Memo 2014-21), where the court took the position that the once-per-year IRA rollover limitation of Code Sec 408(d)(3)(B) applies on an aggregate basis, meaning that an individual could not make an IRA-to-IRA rollover if he or she had made such a rollover involving any of the individual’s IRAs in the preceding 1-year period (not a calendar year).
The IRS, which in its publications had previously interpreted the law to apply the once per year rollover separately to each IRA of an individual, subsequently in Announcement 2014-15 adopted the court’s reading of the law.
In Announcement 2014-32 the IRS clarified that the once per 12-month period rollover limitation also applies to SEPs and SIMPLE plans, but not qualified plans.
One Year Measurement - The one-year period is measured based on the date a distribution is received. If the second distribution is received before the same date one year later, it is a disqualified rollover (IRC Sec. 408(d)(3)(B)).
Exceptions
The following are not treated as rollovers:
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Direct Transfers – As long as IRA funds are transferred directly between trustees the transaction is not considered a rollover. A taxpayer can make as many direct transfers in a year as they want.
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Roth Conversions – Traditional IRA to Roth IRA conversions are not treated as rollovers.
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Distributions From Qualified Plans - For purposes of the one-year waiting period, a distribution from a qualified plan that is rolled over to an IRA is not treated as a rollover from an IRA (Reg § 1.402(c)-2, Q&A 16). Since 408(d)(3)(B) only applies to IRA-to-IRA rollovers, an IRA to a qualified plan rollover is not subject to the one-year rule.
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Failed Financial Institution - An IRA distribution made from a failed financial institution by the Federal Deposit Insurance Corporation (FDIC) as receiver is disregarded for purposes of applying the one-rollover-per-year limitation, provided: (1) neither the failed financial institution nor the depositor initiated the distribution, and (2) no financial institution has assumed the IRAs of the failed financial institution.