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In a surprising decision, US Tax Court has ruled that the One-Rollover-Per-Year rule applies to all IRAs, rather than to each IRA separately as was previously thought.
IRS Publication 590, Individual Retirement Arrangements (IRAs), has the following information in regard to the one-rollover-per-year rule:
Waiting period between rollovers. Generally, if you make a tax-free rollover of any part of a distribution from a traditional IRA, you cannot, within a 1-year period, make a tax-free rollover of any later distribution from that same IRA. You also cannot make a tax-free rollover of any amount distributed, within the same 1-year period, from the IRA into which you made the tax-free rollover.
The 1-year period begins on the date you receive the IRA distribution, not on the date you roll it over into an IRA.
The use of the term “that same IRA” has always been taken to mean that the rule applies to each individual IRA separately, by just about everyone in the business of knowing these things.
Tax Court ruled (in TC Memo. 2014-21) that all IRAs become subject to the one-rollover-per-year rule when any individual IRA has been involved in a 60-day rollover for that taxpayer. This interpretation of Code Section 408(d)(3)(b) is much more literal than was previously thought, based upon the line:
An individual may not receive a nontaxable rollover from an individual retirement account or individual retirement annuity if that individual has already received a tax-free rollover within the past year from an individual retirement account or an individual retirement annuity.
(underlines added) In other words, a taxpayer who maintains multiple IRAs may not make a rollover contribution from each IRA within one year.
IRS has indicated that the language in Publication 590 will be updated to match the Tax Court’s interpretation.
Bear in mind that trustee-to-trustee transfers (direct rollovers) are not subject to the one-rollover-per-year rule, since these transfers are not considered to be “rollovers” by the IRS.
Sterling Raskie, MSFS, CFP®, ChFC®
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And if you’ve come here to learn about queuing waterfowl, I apologize for the confusion. You may want to discuss your question with Lester, my loyal watchduck and self-proclaimed “advisor’s advisor”.
Thanks for the update. The IRS never makes it easy even when they spell it out for us
Well, this was absolutely counter to the way the rule has always been interpreted, which is even more confusing!