Have You Completed Your IRA Rollover Correctly?

Rolling funds over from one retirement plan to another is not always as easy as it sounds. Direct and indirect rollovers have specific applications and IRS rules, which must be followed carefully to avoid ending up in tax court. Therefore, it is important to know all the ins and outs of the rollover process and to discuss your best strategy with a trusted financial advisor.

One study conducted by the Employee Benefit Research Institute found that 56 percent of workers preferred taking their retirement assets as a lump sum, many of which were destined for IRA rollovers.

Another statistic from Cerulli Associates claims that retiring baby boomers could push the IRA rollover surge to $12 trillion by 2020. This represents a lot of retirement funds that must be handled carefully when moving from one retirement plan to another.

Here are some basic rules about rollovers:

• There are two types of rollovers—direct and indirect. Here is the difference:
• Direct Rollovers – This is the most common type of rollover. Usually done from one custodian to the other, the client is responsible for initiating this type of money movement to the new account. The timeline for a direct rollover can usually range between a week and up to a month depending on the transaction time of the initiating custodian. Be sure to consult your current custodian for more information.
• Indirect rollovers — also called “60-day rollovers,” funds do not go directly to the new IRA. A check is made payable to the investor who has 60 days to roll over the money into another IRA (or back to the same one if chosen). You will be penalized if you go over the 60-day period.
• You may only do one rollover per year to avoid taking a taxable distribution. If you make a second rollover within one year of the initial 60-day rollover, you may be hit with a tax penalty of up to 10 percent depending on your age (under 59 ½ years old). You could possibly lose your IRA investment status in the process, so be sure to consult with your advisor or a tax professional before attempting to initiate a second rollover within a 12-month period.
• You can also do a “Trustee-to-Trustee Direct Transfer” – a more hybrid approach. In this process, you will receive a distribution check that is already made payable to the receiving IRA custodian.

Of course, everyone’s financial situation is different, so any rollover strategy should be researched first.

At Next Generation Trust Services, we are here to help with the rollover process. Whether you plan to establish a new self-directed retirement account with funds to be rolled over or with other funding for your new investments, our professional team can answer any questions and provide assistance. For instance, you can learn more about rollovers and contributions for your self-directed retirement plan with this informational video. If you are “ready to roll” (pun intended), you may open an account using our starter kits which guide you through all the steps and necessary documentation we require to administer your self-directed retirement plan. Please do not hesitate to contact us with your questions at Info@NextGenerationTrust.com or 888.857.8058.

IRS to follow tax court’s ruling on IRA rollovers

Last month we told you about the Tax Court’s ruling in Bobrow, T.C. Memo. 2014-21 about IRA rollovers. The Tax Court ruling limits tax-free IRA rollovers to one rollover per taxpayer per year, regardless of how many IRAs the individual has.

The IRS announced it will follow this decision; it will issue new regulations that follow the Tax Court’s interpretation of the law and apply the limitation on an aggregate basis. It will also revise Publication 590 to the extent needed to reflect that interpretation.
Be sure to consult your accountant or tax planning specialist about this matter and how it may affect your overall financial picture and your retirement accounts in particular.

If you have any questions about IRA distributions or rollovers, and the 60-day period that allows for tax-free rollovers into an IRA, ask one of our knowledgeable professionals at Next Generation Trust. Contact us at Info@NextGenerationTrust.com or call (888) 857-8058.

IRA rollovers – how many are too many?

There is a long-standing IRS guideline regarding the number of IRA rollovers an individual can transact in a year, which states a limit of one tax-free IRA rollover per year. This had long been interpreted to be taken on an account-by-account basis (one tax-free rollover per IRA per year). However, the Tax Court has contradicted this by ruling that this one-rollover-per year applies to all of an individual’s IRAs collectively.

This ruling, made in late January in Bobrow v. Commisioner, contradicts what the Internal Revenue Service had published in IRS Publication 590, “Individual Retirement Arrangements.” The document states that “Generally, if you make a tax-free rollover of any part of a distribution from a traditional IRA, you cannot, within a 1-year period, make a tax-free rollover of any later distribution from that same IRA.”

Practitioners have regarded this to mean the limitation applies to each separate retirement account (not as a whole). In other words, the IRS allows individuals to conduct one tax-free rollover during any 12-month period with any particular IRA; people with two or more IRAs could potentially make two or more tax-free rollovers during a 12-month period (one for each account).

This stance is much more beneficial to the taxpayer than what the Tax Court has ruled, which in effect has struck down the IRS guideline.

Here is the nugget of the court case: a taxpayer (Mr. Bobrow) received a distribution from his traditional IRA (IRA1) on April 14, 2008, followed by a distribution from his rollover IRA (IRA2) on June 6, 2008. Bobrow claimed that the distribution from IRA1 was repaid on June 10, 2008, and the distribution from IRA2 was repaid August 4, 2008, both within the 60-day period allowed for qualified rollovers.

The court held that the once-per-year limitation disqualified the rollover from the second IRA, concluding that the rule applies to all of a taxpayer’s IRA accounts: “Regardless of how many IRAs he or she maintains, a taxpayer may make only one nontaxable rollover contribution within each one-year period.”

For people who have several IRAs, there could be tax implications that should be discussed with their accountant or tax planning specialist. There are also certain situations that may be exempt from this rule. The laws are complicated and as we have just seen, guidelines can change. If you have any questions about IRA distributions or rollovers, and the 60-day period that allows for tax-free rollovers into an IRA, our knowledgeable professionals at Next Generation Trust can provide you with answers; you may contact us at Info@NextGenerationTrust.com or call (888) 857-8058. However, since everyone’s tax situation is unique, we recommend you consult your trusted advisor about how this ruling may affect your retirement accounts.

Many Americans Abandon Assets in Old 401(k)s

Don’t be one of them! And, if you are, make plans now to get these funds into an IRA. You will typically have more options for investments and lower fees. If you choose a self-directed IRA administrator you will also have total control over your investments.

A recent survey done by Harris Interactive showed that 30% of respondents said they failed to rollover those retirement assets because they are unsure about the rollover process. And that’s not all – 24% of those with old 401(k)s have between $10,000 and $49,999 in those accounts, and those closest to retirement (ages 55 and older) are leaving the largest amounts of money in these old plans – 29% with $50,000 or more!

Let us show you how simple it is to roll over these funds into a self-directed IRA. Please follow this link for more information on this simple process.