Plan participants with multiple IRAs are on borrowed time if they want to make more than one tax-free rollover from one IRA to another. Beginning Jan. 1, 2015, they can make only one, as Sarah Sise and Sheldon Smith of Bryan Cave note.
The IRS said in Announcement 2014-15 that it will be following the recent Tax Court ruling in Brobow v. Commissioner, T.C. Memo 2014-21. In Bobrow, the Tax Court held that the limitations under Prop. Treas. Reg. §1.408-4(b)(4)(ii) apply on an aggregate basis and not to individual IRAs one may own.
This ruling is a departure from the stance the IRS took in an example in its Publication 590, in which it applied the limit separately to each IRA the owner of multiple IRAs possesses. Under the IRS’ previous view, if a person with two IRAs made a rollover from one of them to a new IRA, it still would be possible to make a rollover from the second existing IRA into another one.
But the Tax Court and the IRS’ implementation of its ruling will allow the holder of multiple IRAs to make only one tax-free rollover per year, and only from one IRA to one other one — period.
Advisors may want to make sure that plan sponsors and participants are aware of this more restrictive interpretation. That would help participants avoid a tax bill and penalties they may not have anticipated, as well as helping them to better plan their financial strategies after Jan. 1.
