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IRA rollover ruling stuns advisers and savers

Saturday, April 5, 2014 - 3:39 PM
From MarketWatch:
Retirement experts call it a game changer for the 50 or so million households in the U.S. that own an individual retirement account — an IRA. Uncle Sam’s Tax Court just ruled that the one-rollover-per-year rule applies to all of a taxpayer’s IRAs rather than to each IRA separately. And that ruling, say experts, is in direct conflict with IRS Publication 590, the bible for IRAs. “Industry leaders, financial advisers, and everyone else who handles IRAs are stunned,” said Denise Appleby, the editor and publisher of The IRA Authority. 

[... ]In other words, we’ve all been operating under the impression that what was written in Publication 590 — you know, the IRS’ very own publication — was correct. But it’s not. In fact, the Bobrow case highlights, according to Appleby, an important rule that we sometimes overlook: “If conflicting information is provided in multiple sources, one must consider the hierarchy and reliability of such sources. In this case, Publication 590 is not authoritative and is not considered official guidance. The Tax Code is the more authoritative, and supersedes any other guidance in the event of conflict.”

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6
pearlbrownpearlbrown1,480 posts since
Nov 2, 2010
Rep Points: 6,434
1. Saturday, April 5, 2014 - 5:26 PM
Why would this be a problem for most people?  We have had IRAs for upteen years and I can only remember doing the Rollover one time.  If we did anything, it was usually a Transfer.  Others must use the Rollover for more purposes than we ever did or had any need to do.
2
paoli2paoli21,405 posts since
Aug 10, 2011
Rep Points: 6,149
2. Sunday, April 6, 2014 - 9:56 AM
IRA transfers can only be done through the mail and many times the transfers even though they are done on time (though many times they are not) the receiving institution will not process the transfer for days or weeks after receiving the check. My sister and I both had this issue a few years back. In fact one of the credit unions that did this we actually went there and the person that had the check found it under her calculator after insisting she never received it.  If we had not gone into that institution who knows how long it would have been before the transaction would have been processed. It was already 4 weeks since the sending institution had sent it from 60 miles away. They did in the end back date the transaction to the day after it was sent after we said there would be a letter sent to the paper and a phone call to the TV station that does stories on this type of thing. 
If the institution was within driving distance, I have many times in the past, picked up the check and overnighted the check if the new bank or credit union was out of state especially if the check was a large amount. If the institution was across town I would ALWAYS pick it up and take it there to insure not loosing a few days interest. Many of the institutions that I deal with now
backdate the transaction to the day the request was sent to them. They are very busy during certain times of the year. Some will let you know when they receive the check  and tell you that it may not get processed for a while but it will be backdated. Other institutions log in the check in your computer file so that if you call the customer service person can let you know that they received it and when and that the transaction will be backdated when it is processed. Congress now has to address this situation of loosing interest on mail transfers for IRA's and insist that the financial institutions back date these transactions or that wire transfers would be acceptable and the transaction completed immediately or backdated. 
 
1
Ally6770Ally6770941 posts since
Jan 16, 2010
Rep Points: 2,739
3. Sunday, April 6, 2014 - 6:27 PM
Depending on the institution, a transfer can be very difficult to accomplish in a timely and efficient manner. I have found that it consumes a great deal of time talking to both the sending and receiving institutions. Even Penfed can be a pain in the as* when requesting them to receive a IRA transfer. Last month, I was told it was going to take at least a week to process my request to tranfer funds from a bank where I had a maturing CD. This was a week just to send the IRA transfer request overnight to the bank from Penfed. The problem is that sometimes you don't have weeks to **** around if the CD rate at the receiving bank is going to change in the near future.

IRA rollovers are so much easier.
3
loulou552 posts since
Aug 3, 2010
Rep Points: 3,431
4. Monday, April 7, 2014 - 12:33 AM
Please explain the difference between a rollover and a transfer
3
James BarnesJames Barnes1 posts since
Apr 7, 2014
Rep Points: 60
5. Monday, April 7, 2014 - 7:20 AM
  Not so much as a game changer as a major inconvenience for savers to allow only one rollover per year. Two transfer occurrences that happened to me.

1)      Last year I opened two IRA cds from two different banks. They both submitted a transfer request where I had the funds at bank A. Bank A sent the funds in a timely manner and both new accounts were opened. About two weeks after the new accounts were set up Bank A initiated a second transfer of funds to the same banks where I set up the two new accounts. The banks where the new accounts were set up wanted to know what the second check was for. Bank A tried to say they received a second request for the second transfer but they could not supply any proof. After about 4 weeks they finally put the funds that were erroneously sent back into my account and refunded the transfer costs they charged.

2)      I opened an IRA cd at Pen Fed this past December. Pen Fed initiated to have the funds transferred from the same bank A. After three weeks the new account had not been opened so I contacted Pen Fed. They said they never received the funds. I went into my local branch of bank A to see what was up and they indicated they never received a request to transfer the funds. They also indicated it may take 6 weeks to make the transfer. I canceled the transfer and requested a hard check and rolled it over to the new account at Pen Fed.  

Bank A in both instances was Bank of America. I do not have an issue with doing a transfer but if they are only going to allow one rollover per year there needs to be some regulations on banks that  transfers be done in a timely manner and there needs to be a more organizational way of completing the transfer so savers are not left on the outside. Since account holders are not involved in a transfer we need to be kept in the loop as to when the transfer request was initiated, when it was received, when the funds will be transferred and when the funds were received.
4
FARFAR108 posts since
Feb 26, 2013
Rep Points: 387
6. Monday, April 7, 2014 - 9:48 AM
#4:  This may help to understand difference between Rollovers and Transfers:

  • Transfers, which are not reported to the IRS and not reported on a tax return. The IRA owner never touches the money. You can do this as often as you like, whenever you like.
  • And rollovers. With this method, the IRA owner takes the money as a distribution and they have 60-days to rollover (put back) the amount in an IRA. And this, you can do only once per 12-month period.
  • 1
    paoli2paoli21,405 posts since
    Aug 10, 2011
    Rep Points: 6,149
    7. Monday, April 7, 2014 - 10:00 AM
    Also INHERITED IRS'S can NEVER have a rollover. If you try to do a rollover you will be taxed and that is the end of the inherited IRA. NO DO OVERS.  Inherited IRA's can only moved with a transfer. 
    3
    Ally6770Ally6770941 posts since
    Jan 16, 2010
    Rep Points: 2,739
    8. Monday, April 7, 2014 - 5:58 PM
    Just read this from the ENCORE from the WSJ in an article speaking of this new ruling on rollovers. I thought IRA's could not be electronically transferred. Anyone have any thing about this they could share? 

    To move money from one IRA to another, a safer solu­tion is to electronically trans­fer the money between ac­counts, says Mr. Slott. In contrast to withdrawing and then redepositing the money, you can make an unlimited number of direct transfers, he adds.
    1
    Ally6770Ally6770941 posts since
    Jan 16, 2010
    Rep Points: 2,739
    9. Monday, April 7, 2014 - 6:59 PM
    Now how can that be done?  What happens to the paperwork that has to be a part of the transfers? What about needed signatures?    I have not heard about the electronic transfers yet but would like to find out more about it.
    1
    paoli2paoli21,405 posts since
    Aug 10, 2011
    Rep Points: 6,149
    10. Tuesday, April 8, 2014 - 1:09 PM
    I am not positive that it can ever be coded as a (trustee-to-trustee) transfer.  It can be done under the old rules as a direct rollover.  Direct, in that it passes directly via wire from one firm to the other.  Rollover, because it is still subject to the 60 day rule.  Most firms, if they agree to do it, will take the funds from the IRA into your personal taxable account - then do the wire to the other firm (also, a taxable account).  The receiving firm then moves the money into your IRA account.  This process (direct rollover) still generates a 1099 even though you never touch the money.  THE ONLY WAY TO DO THE TRUSTEE TRANSFER is by having signature authorization to the receiving firm who then contacts the current custodian to initiate the transfer.  That exact process does the transfer without a 1099 and 5498 handshake with the IRS.

    GOD help us all.  Most firms do not use and do not understand the trustee-to-trustee process and coding, so just make sure you ONLY authorize the receiving firm with original signatures on transfer forms, and keep all your paperwork.
    2
    Anon456Anon45630 posts since
    Oct 30, 2011
    Rep Points: 78
    11. Tuesday, April 8, 2014 - 2:08 PM
    Anon:  That is exactly what I was referring to.  Those signatures on the forms have always been an important part of this type of transaction when we have done them.  I do not know if they would accept this process otherwise.  I also agree with you in your concern that the firms do not always understand the process.  I have actually had to undo errors on our IRA forms by our bank and made sure they did them correctly.  I could never just trust them to do this on their own, sad to say.
    2
    paoli2paoli21,405 posts since
    Aug 10, 2011
    Rep Points: 6,149
    Reply