BULLETIN: Advanced Sales: New IRS policy for Rollovers from One Traditional IRA to Another Traditional IRA
January 5, 2015
The IRS has changed its long standing policy concerning rollovers from one traditional IRA to another traditional IRA1. Under the new policy effective January 1, 2015, only one rollover will be allowed during any one-year period1 no matter the number of traditional IRAs an individual owns. Your clients can still make unlimited trustee-to-trustee transfers between IRAs, and unlimited rollovers from traditional IRAs to Roth IRAs (conversions). (See Announcement 2014-15 and 2014-32)
Under the former interpretation of IRC § 408(d)(3)(A)(i), your clients do not have to include in gross income any distribution from a traditional IRA if that amount is deposited into another traditional IRA or the same IRA within a sixty day period. While only one transfer was permitted from any one traditional IRA annually, if a person owned more than one traditional IRA, a rollover was permitted once a year from each such IRA a person(s) owned. (See Announcement 2014-32)
This change was made because of the recent tax court ruling in Brobrow v. Commissioner, T.C. Memo 2014-21. In that case, the Tax Court ruled that the taxpayer could not make a tax free rollover from one traditional IRA to another, since he had already made such a rollover of a distribution received from another of his traditional IRAs in the previous twelve month period. If your clients violate the “one-rollover” limitation and do roll over more than one distribution received in the same twelve month period, then the second rollover fails and the distributed amounts must be included in gross income. Your clients may also be subject to the 10% early distribution penalty on the amount includable in gross income. The regulations and IRS publications will be revised to reflect this interpretation of IRC § 408(d)(3)(B). (See Announcement 2014-32)
While the IRS will be implementing the changes outlined by Bobrow, the IRS has deferred implementation of this Tax Court ruling until January 1, 2015 giving taxpayers time to adjust. Additionally, this change will not be applied to limit the rollover of distributions made prior to January 1, 2015. Also a transition rule provides that a distribution occurring in 2014 will be disregarded for the purposes of determining whether a 2015 distribution can be rolled over under § 408(d)(3)(A)(i), provided the 2015 distribution is from a different IRA that neither made nor received the 2014 distribution. This means that if a distribution/rollover is begun during 2014 but is not completed until 2015 (but within the allowable 60 days), it will generally not count towards the one rollover allowed in 2015. Effectively, January 1, 2015 provides a fresh start. (See Announcement 2014-32)
Effective – 01/01/15 States – All states
Contact – If you have any questions, please contact your Genworth Advanced Sales Team Representative at
800 532.9116
Genworth companies include:
Genworth Life and Annuity Insurance Company, Richmond, VA
Genworth Life Insurance Company, Richmond, VA
Genworth LifeInsurance Company of New York, New York, NY
Only Genworth Life Insurance Company of New York is admitted in and conducts business in New York.
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162615 12/29/14
A rollover from a traditional IRA to a Roth IRA (a conversion) is not subject to the one rollover per year limitation, and is disregarded in applying the one rollover per year rule to other rollovers. However a rollover between Roth IRAs, would preclude a separate rollover in the same year between the individual’s traditional IRAs, and vice-versa. (See Announcement 2014-32)
This rule does not apply to a rollover into/or out of a qualified plan. It also does not apply to trustee-to-trustee transfers where funds are transferred directly from one IRA to another IRA by providing the IRA owner with a check made payable to the receiving IRA trustee.
1 The IRS includes in the definition of a traditional IRA a simplified employee pension plan as described in § 408(k) and a SIMPLE IRA as described in § 408(p).
1 This period ends one year from the date of the distribution being rolled over.