A Reminder On IRA Rollovers

Retirement, Income, Tax & Estate Planning.

A Reminder On IRA Rollovers

April 22, 2015 Newsletter Taxes 0

I’ve written about this before but I’m still getting many questions from clients, so let’s tackle this issue again about the IRS change on IRA Rollovers.

In the old days (like last year) you had 60 days to move IRA funds from one account to another.  Let’s say you had a CD come due at the bank and decided to move it to a new bank since they were promising huge interest rates of .5%.  You’d go to your bank, cash in the old CD, and they’d make a check out to you.  Sometime in the next 60 days, you’d wander over to the new bank, fill out the application, and write out a check to the new bank for the amount you rolled over.  Done.  No big deal!

Only problem… many folks were abusing the 60 day rule and always had funds in motion… using them for other purposes for about 59 of the 60 days.

How did your favorite friends at the IRS fix the abuse?  Uncle Sam now says you can only do ONE 60-day rollover per year.  If you do more than one 60-day rollover, the money will lose its IRA status and all taxes will be due.

Bottom line: when transferring funds from one IRA custodian to another, you must have the old custodian make out the check to the new custodian for your benefit.  For example, let’s say I was moving funds from Wells Fargo to Bank of America.  I’d have the old bank make out the check to Bank of America FBO Peter Wechsler.  (FBO means for the benefit of.)  Then you’d go to the new bank and open up the new account.

If you follow this rule, you will not get whacked with a penalty or big tax bill.  More questions?  Just shoot me an e-mail or call the office.

Have a fun weekend!