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Smart Women, Smart Money: Rolling Over IRAs?

Emmy, I have three small IRAs that I’d like to combine and rollover into a new IRA. Is this still legal?

On the surface: no, it isn’t. Up until recently, combining several IRAs into a single, newly established IRA was fairly common practice. The IRS has long held a “once-per-year” rollover rule. But due to vague wording, this rule was rarely enforced. The situation has changed.

In January 2014, the Federal Tax Court determined that the IRS can onlyallow one IRA rollover over a 365-day period.  Earnest enforcement of this ruling began in January 2015.

What you propose to do would constitute three rollover transactions. The first would be perfectly copasetic and tax free. The following two transfers, if done within 365 days, could incur taxation and possibly IRS penalties.

There are five exceptions to this rule:

  1. Conversions from a Traditional IRA to a Roth IRA
  2. IRA rollovers to and from company retirement plans such as 401(k)s
  3. IRA first-time home buyer distributions when the home purchase is delayed or cancelled
  4. Qualified distributions for military reservists that are repaid on time
  5. IRA-to-IRA or Roth IRA-to-Roth IRA direct transfers

In addition, there is a temporary “transition rule” for 2015. Currently, an additional IRA rollover may be done within the 365-day black out period under one circumstance only. The present distribution must not originate from either of the IRA accounts that participated in the previous rollover in 2014.

With these exceptions, you may be able to achieve your stated goal. The path you take will be a narrow one. Please seek the assistance of a financial professional before moving forward.

Securities and Advisory Services offered through National Planning Corp. (NPC), member FINRA/SIPC, a Registered Investment Advisor. EH Financial Group, Inc. and NPC are separate and unrelated companies. 

May 7, 2015

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