2020's Key Changes to IRA Rollover Rules: What You Need to Know


When looking to the future, everyone wants to feel secure in his or her long-term financial prospects. A major aspect of feeling secure in your financial future is having the knowledge to navigate the financial landscape with confidence. At Mainstar Trust, serving as custodian of self-directed IRAs is our core business. We strive to keep our accountholders up to date with the most recent information regarding self-directed IRAs.

One of the more recent federal changes concerning IRA owners over the last two years has been the re-interpretation of the rules surrounding IRA Rollovers. A rollover typically takes place when an individual moves retirement funds from an employer’s retirement plan, such as a 401(k), into an IRA. You can also roll your self-directed IRA from one custodian to another.

Rolling your retirement plan funds into an IRA instead of taking a distribution enables you to benefit from maintaining your savings in a tax-deferred account. There are other benefits to rolling over a 401(k) into an IRA, notably the much broader range of assets into which you can invest. Your new IRA can be opened as a self-directed IRA, which gives you many investment options outside of the usual stocks and mutual funds available in a 401(k) plan. With a Mainstar Trust self-directed IRA, you can invest in an almost limitless array of assets, including Real Estate Investment Trusts (REITs), Private Stock, Limited Liability Companies (LLCs), and many other alternative investments.

Regulation Changes IRA Owners Should Be Aware Of

The two recent changes that you need to know are:

  • Revenue Procedure 2016-47 addresses the issue of rollovers that miss the 60-day completion deadline
  • Announcement 2014-15 addresses the “one IRA rollover per year” limitation of Section 408(d)(3)(B) of the Internal Revenue Code

Before we begin it is important to recognize that custodian to custodian transfers of IRAs are not impacted by either change because with a transfer (instead of a rollover) the IRA owner does not take constructive receipt of assets from the originating IRA/retirement plan to deposit to the new IRA. The assets move directly from one custodian to another.

Revenue Procedure 2016-47

Individuals generally have 60 days from the date an IRA or other retirement plan distribution is received to roll it over to another IRA or plan. If the rollover is not complete within 60 days, the amount of the distribution is considered taxable income. Before the new procedures, it was only through a lengthy and costly legal process called a Private Letter Ruling (PLR) that IRA owners could be given relief from the 60-day rule. However, as of August 24th, 2016, the IRS introduced a self-certification process. This process states that if one of the following 11 circumstances occurred, an IRA owner can provide a written certification to his or her IRA Custodian or plan administrator (in this case, Mainstar Trust) stating that the rollover is valid and not taxable:

  • An error was committed by the financial institution receiving the contribution or making the distribution to which the contribution relates.
  • You misplaced the distribution check and never cashed it.
  • You deposited and kept the distribution in an account that you mistakenly thought was an eligible retirement plan.
  • Your principal residence was severely damaged.
  • A member of your family died.
  • You or a member of your family was seriously ill.
  • You were incarcerated.
  • Restrictions were imposed on you by a foreign country.
  • A postal error occurred.
  • The distribution was made because of a levy under Internal Revenue Code Section 6331 and the proceeds of the levy have been returned to you.
  • The party making the distribution to which the rollover relates delayed providing information that the receiving plan or IRA required to complete the rollover, despite reasonable efforts to obtain the information.

The self-certification process can only be used if:

  • The IRS has not denied a waiver request by you in the past regarding a rollover of all or part of the distribution to which the contribution relates.
  • Your reason for missing the 60-day deadline was due to at least one of the 11 acceptable reasons outlined by the IRS.
  • The distribution must be rolled over as soon as the exception for missing the deadline has been resolved (with a 30-day buffer).

Understanding this process is vital in the event a rollover is not completed within the 60-day period.

Announcement 2014-15

Sometimes called the Bobrow Rule, this announcement impacted the number of IRA rollovers allowed per year. Since January 1, 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. This limit applies 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 (IRS Announcement 2014-15 and IRS Announcement 2014-32). The previous interpretation of the rules allowed one rollover per each IRA.

The clock on the one-per-year rollover limitation begins ticking on the exact date the first distribution occurred. To avoid penalties, the second rollover should not be initiated until the 366th day after the first.

The rules regarding rollovers are just one of many federal rules, regulations and guidelines that IRA owners must understand to avoid facing high penalties and committing preventable financial mistakes. Turn to Mainstar Trust to help you stay informed about changes to the rules impacting your IRA.  

Learn more about your retirement options with Mainstar Trust.