Advanced Underwriting Consultants

Ask the Experts – February 3

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax questions posed by producers.  Here’s the question of the day.

Question: I have a client with two separate IRAs. Can he take a distribution from one IRA, roll it over within 60 days, and then do the same with his second IRA, effectively giving him 120 days to have access to his IRA funds?

Answer: No. A taxpayer is only allowed one IRA rollover per year. The Tax Court recently decided Bobrow v. Commissioner, T.C. Memo. 2014-21 (1/28/14), clarifying that the one-year waiting period applies to the IRA owner—not each IRA individually.

In Bobrow, the taxpayer was a tax attorney who owned two IRAs. He withdrew about $65,000 from one IRA and redeposited it within 60 days. He also withdrew the same amount from his second IRA and redeposited this amount within 60 days.

The taxpayer argued that the one-year waiting period applies to each IRA—not the taxpayer’s combined IRAs. The Tax Court disagreed, holding that the one-year limitation applies to all of a taxpayer’s retirement accounts.

Therefore, the taxpayer’s first rollover was respected, but his second was not. He was required to pay (1) ordinary income tax on the second $65,000 distribution, (2) the 10% early distribution penalty, and (3) the 20% accuracy-related penalty on the unpaid tax.

It’s important to note that prior to Bobrow, the answer to your client’s question was most likely “yes” because the IRS, in Publication 590, previously said that the one-year waiting period between rollovers applies to each individual IRA. Bobrow shows that the IRS has likely changed its position to one less advantageous to the taxpayer.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.