Violating the One-Per-12-Month Rollover Rule: A Case Study By Jonathan Yahn JD, CPC Ascensus Years ago, IRA owners could take multiple distributions and roll them over in the same year – as long as they rolled over only one distribution per IRA. Some individuals took this opportunity to an extreme by opening multiple IRAs in order to take advantage of this rule. For example, a business owner with a cash flow problem might use multiple IRA distributions to meet payroll. By maintaining 12 separate IRAs, the owner could take a distribution to meet expenses and roll over that distribution within 60 days – assuming, of course, that the owner had the assets to complete the rollover. But if not, another distribution from a different IRA could replace the funds taken from the first IRA. This “robbing Peter to pay Paul” potentially could go on all year. But this scheme came to a screeching halt in 2014. A U.S. Tax Court decision (Bobrow v. Commissioner) radically revised the one-per-12-month rollover rule, restricting rollovers to individuals rather than to IRAs. The IRS provided further guidance in Announcement 2014-32, clarifying that they can roll over only one distribution per 12-month period irrespective of the number of IRAs individuals have. This restriction includes Traditional, Roth, SEP, and SIMPLE IRAs. Case Study: What if someone violates the one-per-12-month rollover rule? Consider a scenario that we recently encountered on our consulting lines. (Some details have been changed.) A financial adviser’s client wanted to move various IRAs to the adviser’s firm. Rather than simply transfer the assets, the client had taken two distributions from two separate IRAs: one for about $40,000 and another for about $90,000. The client had already rolled over the smaller distribution and was about to roll over the larger one when the adviser discovered the potential problem. Both distributions had been taken within the same week, and both were still within the 60-day rollover window. Relief is available only for violations of the 60-day rollover rule The financial adviser thought that there might be some way that the IRS would allow multiple rollovers within 12 months if there were a good reason. Unfortunately, the provision he was thinking of limits relief to those who have failed to roll over a distribution within 60 days of the distribution; it does not apply to the one-per-12-month requirement. continued on page 18 January • February 2022 17
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