Sunday, August 16, 2015

IRA-One Rollover Per Year Rule: Breaking It Down For You!

IRAs or Individual Retirement Accounts are a common vehicle for retirement savings, with tax-free growth or on a tax-deferred basis. There are 3 types of IRAs: Traditional, Roth and Rollover. Each of these have their own rules & regulations for contributions, eligibility, contribution limits, tax savings etc. 

So an IRA is essentially a basket in which you keep your stocks, bonds, mutual funds or other assets. IRAs are retirement accounts you can open on your own and unlike 401(k)s provided by employers, have lower contribution limits. 

What Is A Rollover?:  
A "Rollover" happens when funds from a retirement account such as a 401(k) into an IRA or from one IRA to another. A rollover is generally a non-taxable event, if you deposit a payment from one retirement account into another within 60 days. 

By rolling over a payment from an IRA, you’re not only saving for your future, your money continues to grow tax-deferred.

If you don’t roll over your payment, it will be taxable (other than qualified Roth distributions and any amounts already taxed) and you may also be subject to additional tax unless you’re eligible for one of the exceptions to the 10% additional tax on early distributions.

One Rollover Per Year Rule:
Beginning in 2015, you can only make one rollover from an IRA to another (or the same) IRA in a 12 month period. This is regardless of the number of IRAs you own. 

The IRS came out with clarifications to this rule via Announcement 2014-15 and Announcement 2014-32

According to these announcements; the limit will apply by aggregating all of an Individual's IRAs, including SEP and SIMPLE IRAs, traditional and Roth IRAs. This is effectively treating all your IRAs as one. 

Exceptions To The One Rollover Per Year Rule:

  • Direct transfers of IRA funds from one trustee to another are not affected. Revenue Ruling 78-406 does not consider this direct transfer a "Rollover". 
  • Rollovers from Traditional IRA to Roth IRA are considered "Conversions" and are not affected by the above rule either. 
  • This rule also ignores some 2014 distributions. This is called a "Transition" rule and it applies only to 2014 distributions and only if different IRAs are involved. 

Tax Consequences of the One Rollover Per Year Limit:
Unless the exceptions above apply, the tax consequences of this new rule will be:
  • You must include amounts of distribution from an IRA in your gross income, if you had made a IRA-IRA rollover in the preceding 12 months. 
  • You may be subject to the 10% early withdrawal tax on amounts included in gross income. 

  • If you put these distributed amounts into another or the same IRA, the amount maybe treated as an excess contribution and taxed at 6% per year as long as they remain in the IRA. 
Please consult with an Enrolled Agent regarding these complicated rules if you think they may apply to you. 

Bibliography: § 408(d)(3); Publication 590-A; Bobrow v. Commissioner, T.C. Memo 2014-21; Announcements 2014-15 & 2014-32. 

As always, read my disclaimer here. Please consult a qualified tax professional for your unique tax needs. More of my contact information is on my website,

Thursday, August 6, 2015

New FBAR Deadline: Why This Is Great News!

 This is what happened on the last day of July this year (2015): President Obama signed into law H.R. 3236, the Surface Transportation and Veterans Health Care Choice Improvement Act (The Act). An unlikely vehicle for deadline changes, but it did make some really important changes to Tax Law & Revenue Provisions, including: 

  1. FinCEN Form 114 (FBAR) filing and extension deadlines;
  2. Tax Filing Deadlines;
  3. Changes to consistent basis reporting between the estate and the person acquiring the property from the decedent. 
Point #3 above modifies due dates for Trust returns: Foreign trusts with US Owners and transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, which is Form 3520-A and Form 3520.  

New FBAR Extension and Due Dates: 
The Act changes the deadline for the FBAR from June 30th to the April 15th, which is the due date for an individual who is resident in the United States. In addition to this, the FBAR can be extended for a period of six months ending October 15th, just as an Individual tax return. 

For those who are not resident in the United States and have to file a US tax return, there is an automatic 2 month extension until June 15th {Under § 1.6081-5}. Under the Act now this extension is available to their FBAR filing as well. 

For those who are filing an FBAR for the first time, the Act specifically states that, "[f]or any taxpayer required to file [an FBAR] for the first time, any penalty for failure to timely request for, or file, an extension, may be waived by the Secretary." 

These due dates are applicable to those returns filed after December 31st, 2015. 

Form 3520 And Form 3520-A Deadlines: 
The due date for Form 3520-A is now generally March 15th and the maximum 6 month extension will be September 15th. Form 3520 is due with the tax returns on April 15th and the maximum extension allowed will be 6 months ending October 15th.
For those of us who work with a lot of clients who have foreign bank accounts and are constantly juggling the FBAR due date of June 30th, with no extensions allowed, this finally comes as a a bit of good news in the constant gloom and doom that is to do with FBAR regulations. 

The IRS or FinCEN need to provide further clarification on the format or forms for such extensions, which may be similar to Form 4868, which is the form for requesting extensions on Individual tax returns currently. There may also be a requirement that these extensions be filed on the BSA Website as in the case of the FBAR forms. 

As always, read my disclaimer here. Please consult a qualified tax professional for your unique tax needs. More of my contact information is on my website,