A Way Around Restriction on IRS Rollovers
I am hoping some can comment on the WSJ article “A Way our Around Restriction on IRA Rollovers” (6/14/2015) –
The author has (it seems) has devised a creative way to avoid the once per year (365 days) rollover rule…
(1)withdraw assets from a T-IRA and
(2)within 60-days rolled over into a Roth (in essence a conversion)
(3)followed by a rechacaterization.
It seems an investor can use this technique multiple times per year – if needed.
Has anyone heard of this before? Any potential pitfalls?
Thank you
Permalink Submitted by Alan - IRA critic on Wed, 2015-06-17 22:19
This is nothing new and this strategy has been known to be a safety valve for many years if the IRA owner realizes that they are holding a distribution that cannot be rolled back because it would violate the one rollover per 12 month rule. But now that the IRS has tightened up the rollover rules to one for ALL IRA accounts, more taxpayers will find themselves in this situation. However, seeing this workaround in the WSJ as a potential foil to the new restrictions, the IRS will not be pleased. If this solution becomes too mainstream, the IRS might come back and require conversions to be done by direct transfer instead of rollover. Further, the number of conversion recharacterizations being reported by taxpayers and custodians may also not be setting well with the IRS. Time will tell.
Permalink Submitted by Bruce Steiner on Thu, 2015-06-18 20:39
A group of us whose names you would recognize have been discussing this the past few days, but I don’t have anything definitive to report. My guess is that the once in 12 months rule doesn’t come up very often, given that it was in the law in its current form since 1978 but very few people, including the IRS, were aware of and understood it.
Permalink Submitted by Jose Morales on Mon, 2015-06-22 16:32
While true that this method can be used, it is infinitely more convenient to simply have your funds moved by a non-reportable IRA to IRA transfer. The only reason I would see using the above method is after you have taken a distribution with the intention of a rollover only to realize that you have already taken a rollover within the past 12 months. While this is sure to happen a bit this year, it’s much better for everyone involved if funds are moved by IRA to IRA transfer.