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March 6, 2009

Ask Appleby: Am I subject to the One-Per-Year Rollover Rule

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Ask Appleby: Am I subject to the One-Per-Year Rollover Rule

QuestionI recently took a distribution from my http://retirementdictionary.com/definitions/401kplan 401(k) account and rolled over the amount to my http://retirementdictionary.com/definitions/traditionalira traditional IRA. I now want to take a http://retirementdictionary.com/definitions/distribution distribution from the http://retirementdictionary.com/definitions/ira IRA and http://retirementdictionary.com/definitions/rollovercontribution rollover the amount within 60-days to the same IRA. This would be my first IRA distribution. However, I am receiving conflicting information about two things. I am being told that the distribution from my 401(k) account to my IRA is a rollover and I am being told it is a http://retirementdictionary.com/definitions/trusteetotrusteetransfer transfer. I am also being told that since I rolled over the 401(k) distribution to my traditional IRA within the last month, I cannot do a distribution and rollover of that IRA money until next year because of a once-per year rule for rollovers. What is the correct answer?

Answer

Updated to reflect new rules on IRA-to-IRA Rollovers

Confusion between what is a rollover and what is a transfer is a common occurrence. And, the related official guidance and tax laws sometimes add to the confusion as they often use the word ‘trustee-to-trustee-transfer’ when referring to http://retirementdictionary.com/directrollover direct-rollovers , and other http://retirementdictionary.com/definitions/reportable reportable transactions where the assets are moved directly between two financial institutions or two retirement accounts. Financial institutions typically use the term rollover, when referring to distributions (reportable on IRS http://retirementdictionary.com/definitions/221/form1099rorirsform1099r Form 1099-R) that are credited to eligible retirement accounts as rollover contributions, and they usually use the term ‘transfer’ when referring to non-reportable movement of assets between retirement accounts.

The person who told you about the once-per 12-month rule was likely referring to the rule that applies to distributions and rollover contributions that occur between IRAs. Under this rule, an individual who rolls-over a distribution from an IRA to another IRA (IRA-to-IRA-Rollover), may generally not perform another IRA-to-IRA-Rollover during the following 12-month period. The 12-month period begins on the day the IRA owner receives the distribution. http://www.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00000408—-000-.html [IRC Sec. 408(d)(3)(B)]. Additional information about limitations on rollovers between IRAs is available in IRS Publication 590A, available at www.irs.gov.

Movement of assets from your http://retirementdictionary.com/definitions/qualifiedretirementplan qualified plan to your IRA is always a distribution from the qualified plan and a rollover contribution to the IRA. This rollover can be a http://retirementdictionary.com/directrollover direct rollover or an http://retirementdictionary.com/definitions/indirectrollover indirect rollover which is subject to http://retirementdictionary.com/definitions/60dayrolloverrule the 60-day rule. A rollover from your 401(k), any other qualified plan account, http://retirementdictionary.com/definitions/403bplan 403(b) account or http://retirementdictionary.com/definitions/457plan 457(b) plan to your IRA is not subject to the once per 12-month (1-year) rule, and it does not affect the once per 12-month rule for rollover contributions between your IRAs.

This question was answered by Denise Appleby , CEO of Appleby Retirement Consulting Inc. http://applebyconsultinginc.com/ Appleby Retirement Consulting Inc provides products and service for retirement accounts, to financial , tax and legal professionals

Please note that there are facts and circumstances that could change the answer to similar questions. Individuals should consult with a advisor regarding the rollover eligibility of assets/amounts.

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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