There are several rules that govern IRA owners when it comes to rollovers. In this article, we will talk about the caveats of rollovers and how they may impact you.
The 60-Day Rollover
The IRS requires individuals to rollover their IRA distribution within 60 days from the date it is received. There are certain circumstances in which the IRS may waive the 60-day requirement, but these are only exceptions to the general rule. Failure to transfer the funds within the 60-day limit will result in the amounts being subject to taxes and penalties.
One Rollover Per Year
Effective January 1, 2015, individuals may only rollover one IRA in a 12 month period. The 12 month period starts on the date of the rollover. It is NOT based on the applicable calendar year. For example, if you rolled over funds on February 20, 2017, then you would not be able to rollover again until February 20, 2018.
A trustee-to-trustee transfer is a way to overcome the once per year rollover rule. The once per year rollover rule does not apply to trustee-to-trustee transfers as the money is never actually in your hands. As such, you have no access to the funds. The IRS defines a trustee-to-trustee transfer as when you request “the financial institution holding your IRA to make the payment directly from your IRA to another IRA or to a retirement plan”.
Since trustee-to-trustee transfers are not subject to the one rollover per year rule, you can perform as many of these transfers as you would like in a year.
Workplace Retirement Plans
Workplace retirement plans offer owners federal protection from third-party creditors. The plans are treated as standard accounts rather than retirement accounts if inherited by a friend or family member, unless the IRA is inherited by a spouse. IRAs inherited by spouses can be used as their own retirement accounts. The law generally favors the spouse when the rollover is challenged by creditors.
The complexities involved in IRA rollovers and inherited IRAs are substantial. Do you need more guidance for your specific scenario? Call the team at Miles Tax Advisory at 410-685-1406 or email firstname.lastname@example.org.