CARL WATTS & ASSOCIATES

December 15, 2014

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IRA Rollovers
for Year 2015
As the end of 2014 closes in, one of the many issues you might want to consider is an IRA rollover, since new rules will apply as of January 1st, 2015.

But, first, let us refresh your information on IRAs.

An individual retirement arrangement, or IRA, is a tax-favored personal savings arrangement, which allows you to set aside money for retirement. There are several different types of IRAs, which you can set up with a bank, insurance company, or other financial institution.

The original IRA is often referred to as a "traditional IRA." You may be able to deduct some or all of your contributions to a traditional IRA. You may also be eligible for a tax credit equal to a percentage of your contribution.

Amounts in your traditional IRA, including earnings, generally are not taxed until distributed to you. IRAs cannot be owned jointly. However, any amounts remaining in your IRA upon your death will be paid to your beneficiary or beneficiaries.

To contribute to a traditional IRA, you must be under age 70 1/2 at the end of the tax year. You, and/or your spouse if you file a joint return, must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self-employment.

Distributions from a traditional IRA are fully or partially taxable in the year of distribution. If you made only deductible contributions, distributions are fully taxable.

Distributions made prior to age 59 1/2 may be subject to a 10% additional tax. You also may owe an excise tax if you do not begin to withdraw minimum distributions by April 1 of the year after you reach age 70 1/2.

A Roth IRA differs from a traditional IRA in several respects. Contributions to a Roth IRA are not deductible (and you do not report the contributions on your tax return), but you also are not taxed on qualified distributions or distributions that are a return of contributions. In addition, you do not have to be under age 70 1/2 to contribute to a Roth IRA. To be a Roth IRA, the account or annuity must be designated as a Roth IRA when it is set up.


An IRA rollover is the movement of funds between two types of retirement plans that may be different, such as from a 401(k) plan to an IRA. Rollovers may be subject to federal income tax unless all requirements are met.

An IRA rollover should not be confused with an IRA transfer, which is the movement of funds between the same types of accounts, such as from one Traditional IRA to another Traditional IRA, where there is no distribution to you. The money is transferred directly from one financial institution to another on your behalf and is also known as a trustee-to-trustee or custodial transfer. Transfers can take place as often as you like, and they are not taxable.

There are several reasons you may want to do an IRA rollover:

  • If you leave your job or retire, you can consolidate your funds into one IRA;
  • If you want a more complete view of your financial picture that is easier to maintain;
  • If you don’t like the restrictions that your workplace savings plan may have;
  • If you need different products than what your current plan provides;
  • If you would like the ability to withdraw funds penalty-free for qualified home or education expenses, and your current plan does not allow it;
  • If you would like the opportunity to convert to a Roth IRA for tax-free growth.

An IRA rollover can be made either through direct payment, or through direct rollover.

If you choose to receive a direct payment of your funds, 20% of the funds may be withheld for taxes. You can recover the withheld amount if you deposit your assets into an IRA within 60 days. The deposit must be equal to the amount of your distribution, plus the 20% that was withheld. When you fund your Rollover IRA with 100% of your distribution, you will receive a refund for the withheld amount in the form of a tax credit when you file your tax return.

If you do not make up the difference of the withheld amount, the IRS will consider it a distribution and will tax it as income. The amount may also be subject to an additional tax.


You can avoid the possibility that 20% of your rollover funds will be withheld for taxes by choosing the direct rollover option.

This is where you have the funds rolled over directly from your employer’s qualified retirement plan into your IRA.

Beginning in 2015, you can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs you own. The limit will apply by aggregating all of an individual’s IRAs, including SEP and SIMPLE IRAs as well as traditional and Roth IRAs, effectively treating them as one IRA for purposes of the limit.

A second IRA to IRA rollover within one year (12 months) is not allowed and will result in a taxable distribution in addition to the 10% penalty if under age 59 ½. IRA owners can essentially loses their IRAs and the IRS has no authority to step in to provide relief.

In a recent announcement, the IRS made clear that the new rule will apply beginning Jan. 1, 2015, and said that a distribution from an IRA received during 2014 and properly rolled over (normally within 60 days) to another IRA, will have no impact on any distributions and rollovers during 2015 involving any other IRAs owned by the same individual. This will give IRA owners a fresh start in 2015 when applying the one-per-year rollover limit to multiple IRAs.

As before, Roth conversions (rollovers from traditional IRAs to Roth IRAs), rollovers between qualified plans and IRAs, and trustee-to-trustee transfers--direct transfers of assets from one IRA trustee to another--are not subject to the one-per-year limit and are disregarded in applying the limit to other rollovers.

IRA trustees are encouraged to offer IRA owners requesting a distribution for rollover the option of a trustee-to-trustee transfer from one IRA to another IRA. IRA trustees can accomplish a trustee-to-trustee transfer by transferring amounts directly from one IRA to another or by providing the IRA owner with a check made payable to the receiving IRA trustee.

And, according to our own rule, you are encouraged to consult your tax professional or financial consultant for any dealings with the IRS or financial decision that may impact your future financial situation.
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