60-Day Rollovers: Just One per Year per Customer, Please
Need a little cash from your Individual Retirement Account (IRA)? Just a short-term need with the intent to replace the funds without triggering a taxable distribution? That’s often referred to as a 60-day rollover – draw the funds to meet the short-term need, then return the money to the IRA within 60 days, and there are no tax consequences. For many years it was widely believed that one 60-day rollover was allowed from each IRA that a taxpayer maintained. The U.S. Tax Court (see Bobrow v. Commissioner) scotched that idea, interpreting the applicable legislation as limiting a taxpayer to a single 60-day rollover within a 12-month period, regardless of how many IRAs he or she happens to hold. Soon after that decision, the Internal Revenue Service announced its intention to start enforcing that more restrictive interpretation of the regulation governing IRA rollovers. And in an amusing twist, the IRS withdrew a proposed amendment to the IRA rollover rules it had sent to the Treasury Department in . . . 1981. That 34-year-old proposal would have enshrined the more liberal approach to 60-day rollovers that lots of taxpayers had long assumed to be the operative rule. But neither Treasury nor the Congress ever formally adopted the IRS proposal, and now the Tax Court has rendered it a “dead letter.” This simply points up the need for careful planning before any IRA withdrawal for which you may want to take advantage of a 60-day rollover. Direct IRA-to-IRA (custodian-to-custodian) transfers are not limited in terms of frequency or time period. So if that short-term need for funds is greater than the amount available in any one IRA, the first step may be to transfer assets from one or more other IRAs. Just a little extra care in the process.