"Once a Year" Rollover Rule Applies to All IRAs

February 2, 2014 by rfg

In a game-changing decision that has wide-ranging ramifications for financial advisers and tax professionals alike, the Tax Court ruled that the once-a-year IRA rollover rule applies to all of one's individual retirement accounts, not to each separately as previously believed. (Alvan L. Bobrow, et ux., v. Commissioner, TC Memo 2014-21, Docket No. 7022-11, Jan. 28).

The court's ruling directly conflicts with a long-standing Internal Revenue Service position in IRS Publication 590 and in private-letter rulings that says that the rule applies separately to each IRA.
Under Internal Revenue Code Section 408(d)(3)(B), an IRA owner can roll over only one distribution within a one-year period. This period is 365 days, not a calendar year, and starts on the day that the IRA owner receives the distribution.
Until now, it was clear that this rule applied separately to each IRA, allowing multiple rollovers during the 365-day period if taken from separate accounts. The Bobrow decision changes that.

The court's ruling directly conflicts with a long-standing Internal Revenue Service position in IRS Publication 590 and in private-letter rulings that says that the rule applies separately to each IRA.

Under Internal Revenue Code Section 408(d)(3)(B), an IRA owner can roll over only one distribution within a one-year period. This period is 365 days, not a calendar year, and starts on the day that the IRA owner receives the distribution.

Until now, it was clear that this rule applied separately to each IRA, allowing multiple rollovers during the 365-day period if taken from separate accounts. The Bobrow decision changes that.

The full opinion of the court can be found here.

 

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