One-Rollover-Per-Year Rule and Spouse Beneficiaries
Hopefully, by now everyone has heard that IRA owners can only do one IRA-to-IRA or Roth IRA-to-Roth IRA 60-day rollover in any one-year period. This interpretation of the 60-day rollover rules was part of a 2014 Tax Court decision (Bobrow v. Commissioner, T.C.Memo. 2014-21). What was unclear from this ruling and from subsequent IRS guidance was whether or not the rule applied to a surviving spouse who inherited multiple IRAs from a deceased spouse.
We now have guidance, sort of. In a private letter ruling (PLR) released on February 17, 2017, the IRS ruled that a spouse is subject to the one-rollover-per-year rule. A PLR only applies to the individual who requested the ruling, but it gives advisors some insight into what the IRS is thinking.
In PLR 201707001, the decedent had seven Roth IRAs and one traditional IRA. All accounts had a trust listed as the beneficiary. When the couple was doing their estate planning they made it clear that the wife should have the ability to move retirement assets to her own account. The trusts presented some roadblocks to accomplishing this, but ultimately the way to accomplish the goal of moving the retirement assets to her own account was set. The surviving spouse requested the PLR to be sure that the IRS would allow her to roll the seven accounts through the trust and out to her own Roth and traditional IRAs.
The IRS agreed that the surviving spouse could move the inherited IRAs through the trust and out to her own IRA accounts. They made it clear that she could only do one 60-day rollover in a one-year period. They recommended that the trust combines all of the Roth IRAs into one inherited Roth account before she did a rollover of the inherited Roth account through the trust and out to her own Roth IRA. The once-per-year rollover rule also means that the spouse will have to wait until one year has passed from the date of her Roth distribution before she can do a rollover of the traditional inherited IRA through the trust to her own IRA (or vice versa). The once-per-year rule does not mean that she can do one Roth 60-day rollover and one IRA 60-day rollover in the same year; she can only do one 60-day rollover. The once-per-year period starts on the day she receives the funds. It is not a calendar year.
Trustee-to-trustee transfers remain the preferred way to move IRA/Roth IRA assets. The asset goes directly from one IRA custodian to another custodian. The IRA owner has no ability to use the assets while they are outside of the IRA/Roth IRA. A check payable to the new custodian qualifies as a transfer. IRA/Roth IRA owners can do an unlimited number of transfers.