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When is a Rollover not a Rollover?

There has been more than a little confusion about the impact of a 2014 Tax Court decision regarding IRA rollovers.  The court held in Bobrow v. Commissioner, T.C. Memo. 2014-21 that you cannot make a non-taxable rollover from one IRA to another if you have already made a rollover from any of your IRAs in the preceding one-year period.  There was concern that the new ruling would apply to the “rollover” of retirement accounts and limit a person’s ability to properly position those savings.

Over the past several years it has been common to refer to eligible rollover distributions from a qualified (pre-tax) retirement plan to another qualified plan simply as “rollovers”.   It is advantageous to move from one qualified plan to another to maintain the tax deferred status of the funds and allow your money to continue to grow tax deferred until the time when you have to take Required Minimum Distributions.  

When handled properly with a trustee to trustee transfer, your savings can continue to grow tax deferred until the time when you have to start taking Required Minimum Distributions.

The IRS clarified this matter as stated in the attached:  “This change won’t affect your ability to transfer funds from one IRA trustee directly to another, because this type of transfer isn’t a rollover.”    http://www.irs.gov/Retirement-Plans/IRA-One-Rollover-Per-Year-Rule.

This is good news for people who want to position their retirement savings according to their needs and the amount of time until their retirement. A person who is a long way from retirement may want to position their funds for accumulation.  A person approaching retirement may want to move their funds to a more conservative product, such as an annuity, which will provide safety as well as accumulation and provide an income stream which they cannot outlive. Since you are not limited to one rollover a year, you may even be able to combine funds from different qualified accounts.

So, when it is a rollover not a rollover?  When it is a trustee to trustee transfer.

Pat Murphy is an experienced insurance professional who has been with Lawyers Insurance since 2005. You can read more about her background on her LinkedIn profile. Contact Pat at 800.662.8843 or pmurphy@lawyersmutualnc.com.