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Will the New IRA Transfer Ruling Affect Me?


"Do you know how the IRA transfer rules for 2015 are supposed to work? I guess it's going to be limited to one transfer for individuals, but unlimited for "trustee to trustee", or something?"

I certainly appreciate your question especially since you are obviously on top of some recent news regarding IRA transfers.  Before I get into the specifics of what you are referring to, I want to emphasize two things to everyone reading this.  First, if you need to roll over an IRA to another IRA or a 401k to an IRA make sure you have the two institutions transfer the money directly without you ever touching it.  This is referred to as a “trustee to trustee” transfer.  Second, as long as you perform your transfers this way, this ruling shouldn’t have any impact on any transfer or conversion strategy that you may currently be implementing.

Hopefully, that puts everyone’s mind at ease.  What the ruling is referring to is that there is another way to accomplish this transfer which is to request that a check is sent to you and then you make sure that these funds make their way to another financial institution.  Do not do it this way if it can be avoided.  There are several very important reasons to avoid doing it this way.

1)    Taxes may be withheld

2)    Stringent requirements especially with completing the transfer within 60 days

3)    Tremendous risk of owing taxes, penalties, etc for failing to complete the transfer correctly

The recent ruling that you are referring to in your question only pertains to the situation where you would receive funds via check.  Since you now know not to do that, then this shouldn’t impact you.  The ruling is saying that you can only perform one of these transfers involving you receiving a check once per 365 days.  If you perform more than one, it creates an absolute nightmare in taxes and penalties.

In some case people were receiving checks, using the money for some purpose and then within 60 days re-depositing money into another IRA and calling it a transfer.  This was basically a short term loan.  IRA’s prohibit loans so this ruling is a way to significantly deter people from doing this more than once every 365 days.  If you can’t tell already, I would advise against ever doing this.

I hope you found this helpful and helped put your mind at ease a little.  The last thing you want is to have taxes and penalties assessed for something you thought was okay to begin with.