The Tax Court of the United States has recently ruled that the one rollover per year rule now applies to all of a taxpayer’s IRAs and not just each IRA seperately. This is now confilicting with Publication 590 which is the publication for IRA rules and if you know anything about IRAs you know that Publication 590 has been the say all for IRA laws and rules. Because of this there are many that are involved with IRAs that have been pretty shocked by the new ruling.
How Can Money Be Moved Between IRAs
Transfers– This is a very popular way to move your IRA money to another IRA. The reason for this is that there is no reporting to the IRS on your tax return. Why don’t you have to report this? Simply because you never touch the money. You can also do this as often as you like at any time you wish.
Rollover– This method allows the IRA owner to take the money as a distribution and they have 60 days to rollover / put back the same amount that was distributed to them in an IRA. This can only be done once every 12 months.
As I mentioned earlier Publication 590 is in direct conflict with the way a rollover works now. For roughly the past 20 years the rollover method has applied to each IRA. What that means is if you had 5 IRAs, you could do 5 rollovers every (one per IRA) 12 months.
So What Does This All Come Down To
First, all of us have been operating under the impression that Publication 590 (published by the IRS) was correct. But It is not correct anymore. A popular guru on IRAs explains how to deal with conflicting information, “If conflicting information is provided in multiple sources, one must consider the hierarchy and reliability of such sources. In this case, Publication 590 is not authoritative and is not considered official guidance. The Tax Code is the more authoritative, and supersedes any other guidance in the event of conflict.” Read more from Publication 590 and see for yourself what is says.
What Happens Next
Supposedly, the IRS will be changing its publication to make it in accordance with tax code. It is now a wise decision to make sure you are only doing one rollover no matter how many IRAs you have. You should start moving your IRA money through transfers instead of rollovers. Rollovers just have too many pitfalls while transfers are much less risky and don’t have the pitfalls that rollovers.
Making sure you move your IRA money correctly is very important. If done incorrectly it can mean that your IRA gets canceled out and you’ll get hit with taxes. You must make sure you are doing everything that you can do to it correctly. It is very wise and important to get quality information and use the best of companies to help you through the process. One of the best things you can do is to have a very smart and reputable tax account to help you know exactly the tax laws that you need to abide by. We at Accuplan Benefits Services can help you with your IRA transfers and with any Self Directed IRA investing.
Author: Nick Barker