Some of you have expressed concern about recent articles in the press regarding IRA rollovers, and granted, the terminology in these articles can be confusing.  The IRS now interprets the “once per year” IRA rollover rule to mean that an IRA owner can make one and only one IRA-to-IRA rollover during a 365-day period no matter how many IRAs that person owns.

Where It Applies 

This IRA rollover ruling applies when an IRA owner takes a distribution from one of his or her IRAs and then within a 60-day period rolls it back into that IRA or into another IRA.  The key to understanding this ruling is the word, distribution.  A distribution from an IRA occurs when the IRA owner actually takes constructive receipt, or control, of the money outside the IRA.  The IRA owner can then use that money tax-free and penalty-free for up to sixty days even if he or she has not reached age 59½.  In the past if a person owned multiple IRAs, he or she could use this strategy for a number of 60-day periods in any given year.  The new IRS interpretation restricts this type of rollover to once in a 365-day period regardless of how many IRAs a person owns.

Where It Does Not Apply

This “once per year” IRA rollover ruling does not apply to IRA transfers.  An IRA transfer occurs when an IRA moves directly from one IRA custodian to another IRA custodian without the owner taking a distribution, or constructive receipt, of the money.  An investor can do this as often as he wishes.

The “once per year” IRA rollover ruling also does not apply to rollovers made to or from employer retirement plans.  Examples of employer retirement plans include 401(k)s, 403(b)s, and Profit Sharing Plans.

We are not tax experts, but this is our attempt to help clarify what this new IRS interpretation of the “once per year” IRA rollover rule means.  We recommend that you verify the opinions we have expressed here with your tax advisors.