A recent IRS (Internal Revenue Service) ruling puts new restrictions on the number of indirect rollovers from one IRA to another that consumers can make annually. An indirect rollover occurs when an investor withdraws funds from an IRA and then takes up to 60 days to reinvest the proceeds in a different IRA without incurring income tax liability. Unlike a direct rollover, money is not sent directly from one financial trustee to another, but is handled by the taxpayer. Previously, indirect rollovers were allowed once every 12 months from each IRA account that a taxpayer owns.
However, after a federal court decision in January when taxpayers Alvan and Elisa Bobrow were hit with a $51,298 income tax bill and a penalty of $10,260 after making multiple rollovers, indirect rollovers are now being restricted. Starting January 1, 2015, taxpayers will only be able to make one rollover for all of their collective IRA accounts each year. They will not be able to make a rollover per account anymore.
According to Ed Slott, IRA educator and author, the safest way to handle rollovers is direct trustee to trustee. Direct rollovers are not restricted, so taxpayers can move their IRA accounts at any time between financial institutions. So, if you are thinking about an IRA rollover, the best way to do it is to execute a direct rollover. Although the indirect route may seem easier, it can result in a lot more problems for you.
Source: Reuters
