IRA rollover limits are nothing new. However, the IRS will begin enforcing a new interpretation of the rule that limits the number of nontaxable IRA rollovers an individual can complete.
Previously, the IRS allowed one rollover per 12-month period from each IRA an individual owned. Based on the current tax code and recent subsequent ruling by the U.S. Tax Court, IRA owners will be allowed to complete only one IRA-to-IRA rollover per 12-months. Period. Regardless of how many IRAs they own.
This is an extremely significant shift in position requiring corresponding behavior change for IRA owners.
Consequences: Rolling over multiple distributions may result in additional taxes and penalties, such as excess contribution penalties and ordinary income taxes on the erroneous rollover amounts, late-tax payment penalties, and potential early distribution penalties. In fact, the tax bill and penalties assessed by the Tax Court against the taxpayer exceeded $60,000.
This is an “about face” on the IRA rollover rules, and is bound to catch some IRA owners off guard.
The IRS is indicating that it will begin enforcing the Tax Court ruling on January 1, 2015.