Ed Slott explains the costly penalties that some advisers and their clients are suffering from after overlooking a new ruling regarding IRA rollovers. Slott begins,
Only one 60-day IRA-to-IRA rollover can be done per year (365 days) by an individual, regardless of how many IRAs he or she holds.
A strict new version of the once-per-year IRA rollover rule has been in effect since Jan. 1, 2015, but some advisers are still making costly errors. Some clients, too, are completely unaware of the new rule. The fallout is happening now after the filing of clients’ 2015 tax returns. This was the first year that a second ineligible IRA rollover would trigger an unwanted tax bill and related possible tax penalties.
Unlike some other tax mistakes, running afoul of the once-per-year IRA rollover rule is a fatal error. It cannot be fixed. IRS does not have the authority to provide any relief on this error.
As a result of a now-landmark Tax Court ruling (Alvan L. Bobrow, et ux. v. Commissioner, TC Memo 2014-21, Docket No. 7022-11, Jan. 28, 2014) and follow-up guidance from IRS in Announcement 2014-32 (issued on Nov. 10, 2014), a stricter interpretation of the rule applies.
Continue reading the full story here: A fatal IRA rollover error
Posted by Allison Trupp, Associate Editor, Wealth Strategies Journal