Q. I manage my own money and keep a traditional IRA, a SEP IRA and a rollover IRA at three different discount brokerages. I have always borrowed from two of these accounts when I needed a short-term loan and then made sure I paid the money back within the 60-day rollover period. Occasionally, I have needed to use money from one IRA account to pay back the other IRA within the 60-day period. I haven’t been with the brokerage holding my rollover IRA for very long since I just established that account after taking early retirement in March. I stopped by the branch office and completed a distribution form and asked for a deposit form while I was there. The guy started asking me if I planned to redeposit my distribution within 60 day, which I said I did, but then he started asking about any other IRAs I had and if I’d taken a distribution from those. I told him it wasn’t any of his business if I have other IRAs and if I did what I do with them is my business. He mumbled something about he was just trying to keep me from making a mistake due to a new rule concerning 60-day rollovers. I kind of left in a huff but now I’ve done some research and it looks like there was some sort of rule change. I completed a 60-day rollover within my traditional IRA in August of last year. Now I’ve taken a rather large sum of money from my rollover IRA that I had planned to put back within 60 day. Can I still do so? If this new rule applies can I fix what I’ve done and avoid taxes and penalties (I’m under age 59 1/2 )?
A. You owe the man at the branch office an apology; he was trying to keep you out of trouble. Thanks to a Mr. Bobrow, as of Jan. 1, 2015, a new rule applies to 60-day rollovers. In a tax court case, Bobrow v Commissioner, the tax court decided that the one year IRA rollover rule applies in aggregate for all IRAs. To prevent abuse, IRC Section 408(d)(3)(B) applies a limitation that the 60-day rollover rule can only be applied once in a one-year period.
Before this court case, the IRS applied the rule separately to each IRA. In the past, you could withdraw from one IRA and roll the money back into that same IRA or another IRA within 60 days and avoid any tax or penalties on the withdrawal. You could then make a withdrawal from another IRA and roll the monies back into that or another IRA not impacted by the previous rollover transactions within 60 days avoiding any tax or penalties even if a year had not passed since the prior rollover. Example: You have four IRAs, A ,B, C, D. You used to be able to make a withdrawal from A and roll it to B within 60 days and turn right around and make a withdrawal from C and roll it to C or D within 60 days and avoid taxes and penalties.
The rule now states that only one IRA to IRA rollover can be done per year from all IRAs held by an individual, including SEPs, SIMPLE IRAs and Roth IRAs. One year is measured as 365 days from the date of the distribution.
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You state that you completed a 60-day rollover in August of last year. You may be lucky depending on what you mean by completed. If the date of this distribution was 365 days prior to the date of your most recent distribution you will be allowed to make another rollover since one year has passed. If the most recent distribution was less than 365 days from the distribution date of the 60-day rollover “completed” in August you are out of luck. You will owe taxes and a 10 percent early withdrawal penalty since you are under age 59 1/2 .
Please note that these rules do not apply to direct trustee to trustee transfers, rollovers from other types of plans to IRAs, rollovers from IRAs back to plans or Roth conversions.
Holly Nicholson is a certified financial planner in Raleigh. She cannot answer every question. Reach her at askholly.com or P.O. Box 97128, Raleigh, NC 27624