Primer on the One-Per-12-Month Rollover Rule
Famous Court Case
As a result of the famous year 2014 United States Tax Court ruling in Bobrow v. Commissioner, the IRS changed one-per-12-month rule for rollovers between IRAs. the rollover rule is found in IRC Sec. 408(d)(3)(B) and prior to this famous court case most financial professionals interpreted the one rollover per 12 months to apply to each IRA not all of the tax payers IRAs in aggregate.
As a result of Bobrow, the IRS changed its interpretation of IRC Sec. 408(d)(3)(B). Since then, each taxpayer—not each IRA—is entitled to one rollover per 12-month period.
Further Guidance from the IRS
The IRS released further guidance (https://www.irs.gov/pub/irs-drop/a-14-32.pdf), entailing the following.
- The following IRAs have to be aggregate when tax payer applies the one-per-12-month limitation: SIMPLE IRAs, Traditional IRAs (including SEPs), and Roth IRAs;;
- Roth IRA conversions do not count toward the limitation;
- IRA-to-IRA transfers (i.e., when the check is made payable in the name of the new IRA custodian and the funds are directly deposited into the new IRA) do not count toward the limitation; and
- rollovers to or from eligible employer-sponsored retirement plans such as solo 401k plans do not count toward the limitation.
Julie processes a distribution from her traditional IRA on April 5, 2019 and then rolls over the funds to another IRA with Fidelity on June 1, 2019. Later, Julie decides to process a distribution from her Roth IRA on Augusts 1, 2019. Julie will not be able to rollover the Roth IRA distribution amount a Roth IRA because she already used her one rollover per 12-month.
Jake opens a solo 401k plan for his self-employed business and takes a distribution from his traditional IRA on March 2, 2019 which he then rolls over to his solo 401k plan on March 22, 2019. Jake then requests a rollover from his existing Roth IRA on July 4, 2019 and deposits the funds back into a Roth IRA August 15, 2019. He does not violate the one-per-12 month rollover rule because the first rollover was to a solo 401k plan.
To learn more about he rollover rules, VISIT HERE.