Life and Death Planning for Retirement Benefits

Chapter 2: Income Tax Issues

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no prohibition against two tax-free rollovers within 12 months of each other, provided that the distributions being rolled over did not occur within 12 months of each other. Barak Example: Barak received Distribution #1 from IRA “A” on January 2, Year 1, and rolled it into IRA “B” on February 28, Year 1. He received Distribution # 2 from IRA “A” on January 5, Year 2, and rolled it into IRA “B” on February 1, Year 2. Both distributions are tax-free: even though the second rollover occurred less than 12 months after the first rollover, the second distribution did not occur within one year of the first distribution . D. Exceptions to the one-per-12-months rule. Neither a Roth conversion ( ¶ 5.4.07 ), nor the “recharacterization” of an IRA or Roth IRA contribution ( ¶ 5.6.03 , #5), is treated as either a distribution or a rollover for purposes of this rule. Regs. §1.408A-4 , A-1(a), §1.408A-5 , A-8. For another exception to the one-per-year limit rule (for thwarted would-be first-time homebuyers), see §72(t)(8)(E) , discussed at ¶ 2.7.04 (A). The limit of one IRA-to-IRA rollover per year has no application to a direct transfer of funds or property from one IRA custodian to another IRA custodian (IRA-to-IRA transfer; see ¶ 2.6.07 ). In most cases, concerns about § 408(d)(3)(B) can be easily avoided by using an IRA-to- IRA transfer rather than a rollover. § 408(d)(3)(B) prevents the rollover into an IRA of a second distribution within 12 months from an IRA; it does not prevent a rollover of such a second IRA distribution into some other kind of eligible retirement plan , nor does it prevent multiple tax-free rollovers into an IRA from some other type of plan. Thus it would appear easy to avoid § 408(d)(3)(B) by rolling the second IRA distribution first into a QRP and then rolling it out again to another IRA shortly thereafter. Yoav Example: In July, Yoav withdraws $60,000 from IRA #1, intending to roll it over tax-free to another IRA. Then he remembers that in April of the same year he received, and rolled over to IRA #2, a $1,000 distribution from IRA #1. He would rather pay tax on the $1,000 distribution he received in April than on the $60,000 distribution he received in July. He now wishes that he had said the $1,000 contribution to IRA #2 in April was part of his “regular” IRA contribution for the year, not a rollover of the distribution from IRA #1. Unfortunately, he can not now retroactively elect to treat the $1,000 he deposited in IRA #2 in April as a regular rather than a rollover contribution. In order for a contribution to qualify as a tax-free rollover the participant must elect, “ at the time the contribution is made , to treat the contribution as a rollover contribution. ...This election is irrevocable.” Reg. § 1.402(c)-2 , A-13. Thus, when Yoav made his $1,000 contribution to IRA B in April he was required to irrevocably designate it either as a rollover or a regular contribution. If he said it was a rollover contribution when he made it, he cannot retroactively change that election. E. Taxpayer cannot later choose which rollover is tax-free.

Earliest date a rollover can be made

The earliest date on which a rollover can occur is the date the distribution being rolled over is made. A contribution made before a distribution is received cannot be treated as a rollover of such later-received distribution. PLR 2014-12020. See also ¶ 2.1.03 regarding when a distribution occurs.

Avoid some rollover requirements with IRA-to-IRA transfer