The Internal Revenue Service (IRS) recently issued announcements regarding individual retirement accounts (IRAs) and bitcoin. Since more of you have retirement savings than bitcoins, I’ll start with IRAs.
In the April AAII Journal, which will be on AAII.com early next week, we introduce you to Alvan and Elisa Bobrow. This couple is responsible for promoting a change in the rules regarding when you can and cannot rollover IRA. The rollover rules allow you withdraw and redeposit funds from a traditional IRA on a tax-free basis as long as you do so within a 60-day window. Patrick Gutierrez, a specialist in employee plans at the IRS, told me some people try to take advantage of this window to get what is in effect a free, temporary loan.
I can’t speak to the Bobrows’ reasons for doing what they did, but here is the short version of the events. Between April and September 2008, the couple moved money in and out of three IRAs. The IRS, which currently allows one rollover per IRA account per year, said the Bobrows violated the rollover rules with their actions. The tax court not only ruled in favor of the IRS, but further said the tax code limits aggregate IRA rollovers to one per a 12-month period.
I hope you read that last paragraph carefully. Currently, IRS Publication 590 says if you roll over funds from existing IRA #1 to new IRA #3, you cannot make any other rollovers from these accounts during a 12-month period. You can, however, make a rollover from existing IRA #2 to new IRA #4 at any time. Just after the April AAII Journal went to press, the IRS issued a new bulletin saying that in light of Bobrow v. Commissioner, IRA rollovers will be limited to one per person per year. The new rule will apply regardless of how many retirement savings accounts a person owns. It’s not certain when the new rule will take effect, but the tax agency’s current intention is to have it take effect on January 1, 2015.
The new rollover rule will not apply to trustee-to-trustee transfers. Both Sally Schreiber, the senior tax editor at the Journal of Accountancy, and Mark Luscombe, a principal analyst at CCH Tax & Accounting, confirmed that this means you can move your IRA accounts to as many brokers as you would like over the course of a 12-month period. The key is that you move the actual account, and don’t move funds from one IRA to another. (If that sounds like a technicality, realize it is a big one.)
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