IRS Adopts Aggregate IRA Annual Rollover Limitation

The IRS has announced that it intends to follow the Tax Court’s interpretation of the statutory one-rollover-per-year limitation on Individual Retirement Account (IRA) rollovers as an aggregate limit. The IRS has previously applied the one-per-year limitation under Code Sec. 408(d)(3)(B) on an IRA-by-IRA basis, as indicated in Publication 590, Individual Retirement Arrangements, and issued Proposed Reg. §1.408-4(b)(4)(ii) consistent with that application .

However, in A.L. Bobrow, 107 TCM 1110, Dec. 59,823(M), TC Memo. 2014-21 (TAXDAY, 2014/01/29, J.3), the Tax Court held that the limitation applies on an aggregate basis, so that an individual could not make an IRA-to-IRA rollover if the individual had made such a rollover involving any of the individual’s IRAs in the preceding one-year period.

The IRS intends to withdraw the proposed regulation and revise Publication 590 and anticipates that it will follow theBobrow interpretation, regardless of the end resolution of that case. Adoption of that interpretation of the statute will require IRA trustees to make changes in the processing of IRA rollovers and in IRA disclosure documents. Therefore, the IRS will not apply the Bobrow interpretation of Code Sec. 408(d)(3)(B) to any rollover that involves an IRA distribution occurring before January 1, 2015.

Additionally, proposed regulations expected to be issued applying this interpretation will not take effect prior to 2015. Application of this interpretation by the IRS will not affect the ability of an IRA owner to transfer funds from one IRA trustee directly to another, because such a transfer is not a rollover and, therefore, is not subject to the one-per-year limitation.