Life and Death Planning for Retirement Benefits

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140 Life and Death Planning for Retirement Benefits
certain RMDs under transition rules when the final minimum distribution regulations were
coming into effect.
2.6.04 60-day rollover: Must roll over same property received
A rollover cannot be used to “swap” property out of a retirement plan.
If property is distributed to a participant or surviving spouse from a QRP, and the recipient
wants the distribution to be treated as a tax-free rollover to another plan or IRA (or as a valid
conversion to a Roth IRA), the same property that was received from the first plan must be
contributed to the recipient plan, IRA, or Roth IRA. The participant (or surviving
spouse) cannot simply substitute some other asset of equal value; if he still owns the property that
was distributed from the first plan, that is what must be contributed to the same or another plan to
have a tax-free rollover (or valid Roth conversion as the case may be). Rev. Rul. 87-77, 1987-2
C.B. 115. The only exception is that if the participant (or surviving spouse) sells the property after
receiving it from the first plan, the sales proceeds are rolled over rather than the property itself; no
income is reportable as a result of the sale (because it is treated as if it had occurred inside a
retirement plan). The Code does not authorize selling distributed property and rolling
over the sale proceeds in connection with rollovers of IRA distributions; it blesses only rollovers
of the “amount received (including money or other property).
2.6.05 60-day rollovers: Only one IRA-to-IRA rollover in 12 months
A participant or surviving spouse may not roll over an IRA distribution to the same or
another IRA “if at any time during the 1-year period ending on the day of…[the receipt of the
distribution] such individual received any other amount...from an individual retirement
account...which was not includible in his gross income because” it was a tax-free rollover to an
IRA.
A. How rule applies to multiple IRAs . The statute forbids the tax-free rollover, into the same
or another IRA, of any IRA distribution that is received less than 12 months after a prior
IRA distribution that was rolled over to an IRA – regardless of which IRA(s) the later
distributions(s) came from.
However, for rollovers prior to 2015 the IRS did not apply the rule so strictly.
Rather, the IRS applied the rule on an account-by-account basis: Once an IRA owner had
rolled over a distribution from one IRA into the same or another IRA, he could not, within
12 months after the date of the earlier distribution, do an IRA-to-IRA rollover of any other
distribution from an IRA that was involved in the first rollover. See IRS Publication 590
(2013), p. 25, and Prop. Reg. § 1.408-4(b)(4)(ii). Under the IRS’s interpretation, the
participant could roll over, to an IRA, a later distribution received within 12 months if it
came from an IRA that was not involved in the prior rollover.
The Tax Court threw out the IRS’s easy-going interpretation of the once-per-12-
months rule in Bobrow v. Comm’r, TC Memo 2014-21 (1/28/14). It held that there could
be no IRA-to-IRA rollover of a second IRA distribution received within 12 months after
an earlier IRA distribution that was rolled into an IRA, regardless of whether the
distributions came from the same or different accounts.