Tax Court Limits IRA Rollovers

Tax Court Limits IRA Rollovers

IRS Publication 590, which addresses the tax effects of Individual Retirement Accounts (IRAs), gives the following example:

You have two traditional IRAs, IRA-1 and IRA-2. You make a tax-free rollover of a distribution from IRA-1 into a new traditional IRA (IRA-3).  You cannot, within 1 year of the distribution from IRA-1, make a tax-free rollover of any distribution from either IRA-1 or IRA-3 into another traditional IRA.

However, the rollover from IRA-1 into IRA-3 does not prevent you from making a tax-free rollover from IRA-2 into any other traditional IRA.  This is because you have not, within the last year, rolled over, tax free, any distribution from IRA-2 or made a tax-free rollover into IRA-2.

In Bobrow v. Commissioner (TC Memo 2014-21), the Tax Court ruled that the one-rollover-per-year rule applies to all of a taxpayer’s IRAs rather than to each IRA separately.  This ruling conflicts with IRS Publication 590.  The Tax Court concluded that the section 408(d)(3)(B) limitation applies to all of a taxpayer’s retirement accounts and that regardless of how many IRAs he or she maintains, a taxpayer may make only one nontaxable rollover contribution within each one-year period.

If you have a concern about your legal rights, remedies and obligations, contact the experienced lawyers of Courtney Elder Law Associates at 601-987-3000.