Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

rollover is permitted if the distribution came froman IRAnot involved in the 2014 rollover). IRS Announcement 2014-32.

3. The new rule apparently applies to a surviving spouse who takes a distribution from an IRA inherited from her deceased spouse: She cannot roll that distribution over to an IRA if, within 12 months prior to receiving such distribution, she received another IRA distribution that she rolled over to an IRA (regardless of whether that earlier distribution came from “her own” IRA or from an IRA inherited from the deceased spouse) (subject to the exception noted in #2). See PLR 2015-11036. However, she presumably can avoid this fate by not taking a distribution from the deceased spouse’s IRA–rather, she can simply “elect” to treat the deceased spouse’s IRA as her own IRA (see ¶ 3.2.03 ), or use a direct transfer. 4. If an individual takes a distribution from his Roth IRA and rolls it into another Roth IRA, he has done his single permitted IRA-to-IRA rollover for purposes of the once-per-12- months rule: He cannot roll any Roth IRA distribution received in the next 12 months over to a Roth IRA—and he also cannot roll any traditional IRA distribution received in the next 12 months over to a traditional IRA. IRS Announcement 2014-32. Granny Example: Granny has two IRAs, IRA A with Florida Bank A and IRA B with Florida Bank B. In 2015 she moves from Florida to Minnesota. She opens IRA C with Minnesota Bank C. She cashes out her IRA with Bank A and mails the money to Bank C. A week later she cashes out her IRAat Bank B. She cannot roll this second distribution over to any IRA because she already did one IRA-to-IRA rollover of an IRA distribution received within the preceding 12 months. Under the IRS’s now-defunct more sensible approach that expired 12/31/14, she could have rolled the second distribution to IRA C because the second distribution came from an account that was not involved in the first rollover (as the IRS so ruled on similar facts in PLR 2013-48017). Of course Granny does not have to move her funds simply because she is moving to a new state; most IRA providers can do business nationally. And she does not need to do 60-day rollovers at all—she could (and should) have used direct transfers instead. But this “harmless error” has trapped her in a taxable distribution and unfortunately the IRS can not grant waivers or exceptions to this rule. B. Not a calendar year test. The no-rollover period is twelve months from the date of receipt of the first distribution that was rolled over. Thus it is always necessary to look back into the prior calendar year, as well as to the current calendar year, in determining whether there has been a prior rolled-over distribution that would prevent the rollover of a second distribution. C. Distribution dates count, not rollover dates. The rule prevents tax-free rollover of a distribution that occurs within 12 months of a prior distribution that was rolled over. Thus, if Distribution #2 is received less than 12 months after Distribution #1, waiting until 12 months have elapsed since the prior rollover does not cure the problem. Similarly, there is The once-per-12-months rule has always been a trap for the unwary, and will now trap even more of the unwary under the new stricter post- Bobrow interpretation: