Under transition relief, the Bobrow aggregation rule disregards certain distributions occurring in 2014.
The IRS clarified how the recently announced change in how it interprets the statutory one-rollover-per-year rule for individual retirement arrangements (IRAs) affects 2014 rollovers and how the rules apply starting in 2015.
Sec. 408(d)(3)(A)(i) permits a tax-free rollover of funds in a taxpayer’s IRA, as long as the amount distributed to the taxpayer is paid into an IRA for the taxpayer’s benefit within 60 days, subject to the one-rollover-per-year limit of Sec. 408(d)(3)(B). The Tax Court in Bobrow, T.C. Memo. 2014-21, held this rule applies on an aggregate basis, meaning no matter how many IRAs a taxpayer has, the taxpayer is limited to one rollover per year. In March, the IRS announced it would follow the Bobrow decision but, acknowledging its contrary guidance in Publication 590, Individual Retirement Arrangements (IRAs), and never-finalized 1981 proposed regulations, said it would delay application of the aggregate limitation until 2015 (see prior Tax Matters coverage: “Rollover Contribution to Second IRA Disallowed,” May 2014, page 61, and “Multiple IRA Rollover Case Settled,” July 2014, page 84).
Other than under a transition rule, below, an individual receiving an IRA distribution on or after Jan. 1, 2015, cannot roll over any portion of it into an IRA if, in the preceding one-year period, the individual has received a distribution from any IRA that was rolled over into an IRA. A rollover between an individual’s Roth IRAs would preclude a separate rollover within the one-year period between the individual’s traditional IRAs, and vice versa, but the limitation does not apply to a “conversion” rollover from a traditional IRA to a Roth IRA.
The announcement also contains a transition rule: In determining whether a 2015 distribution can be rolled over, the IRS will disregard a distribution occurring in 2014 that was properly rolled over to another IRA, as long as the 2015 distribution is from a different IRA that neither made nor received the 2014 distribution. Thus, the aggregation rule will apply to distributions from different IRAs only if each distribution occurs after 2014. The new rule does not apply to trustee-to-trustee rollovers, or rollovers between qualified plans and IRAs.
By Sally P. Schreiber, J.D., a JofA senior editor.