New 60-day IRA Rollover Rules Spell Trouble for Some

June 2, 2014

Early this year, the U.S. Tax Court made a surprise ruling (Bobrow v. Commissioner) related to the 60-day IRA rollover rules. The ruling, which came as a shock to individuals and practitioners alike, completely contradicted the IRS’ previous position, the instructions in Publication 590 and years of practice.

Prior to the ruling, individuals could take distributions from their IRAs and, if they deposited the amount(s) or some portion thereof back into an IRA within 60 days, not have a taxable distribution. Previous guidance held that an individual could have multiple 60-day rollovers in a 12-month period if they had multiple IRAs. The new guidance now aggregates all IRAs for purposes of the 12-month period, meaning that an individual can only do one 60-day rollover in a 12-month period, regardless of the number of IRA accounts they hold.  Trustee-to-trustee transfers are not affected by the ruling. This change will not impact many individuals, but it will certainly affect those that have become accustomed to using their IRAs for short-term loans.

Initially there was some level of hope that the IRS would reaffirm their 30-year position. However, such hope faded when they followed up with Announcement 2014-15, which postpones the Bobrow decision until January 1, 2015. The new rules apply to rollovers that take place after January 1, 2015.

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