Intricate financial and estate planning details are understandably hard for many residents to wrap their head around. There are hundreds of thousands of page written in federal statutes, case opinions, and regulations dictating what can be done and what cannot. Making matters even more complex is that fact that even professionals can disagree on how certain rules should be applied.
For example, many financial planners are up in arms following a recent opinion by a U.S. Tax Court related to IRA rollovers.
The Case
The ruling examines a provision in the tax code that allows one to withdraw money from an IRA without tax or early withdrawal penalties so long as the funds are put into a different account within 60 days. Based on federal law, account owners are required to wait one year before making the move again. In other words, you cannot keep changing accounts every month.
According to many, based on guidance repeatedly published by the IRS for nearly three decades, this “one year wait” rule applied separately to individual IRA accounts.
However, earlier this year a federal Tax Court judge issued a ruling in a case that the once per year rule applies to all IRA account collectively. Essentially then, as an American College of tax Council brief in the case explained, the issue is whether the once per year rule applies per IRA or per taxpayer.
In the aftermath of the decision, many tax attorneys and other practitioners are calling for the decision to be vacated. They argue that it undermines public confidence for taxpayers to be punished even when following the IRS’s own guidance. However, following the ruling, IRS officials released information suggesting that updated guidance will reflect this most recent decision, limiting IRA rollovers to once per year per individual.
Keeping an Eye Out for Legal Changes
The specifics of this case are somewhat nuanced and based on statutory interpretation. But rolling over IRA funds is a common practice that is used by residents of all income brackets, and so this issue has direct relevance for many.
In addition, one of the many lessons to take from this particular debate is the fact that you need to constantly have eyes on your long-term plans to determine if they need to be updated or changed. That is one value of having professional oversight of your affairs, peace of mind comes with knowing someone else watching out for changes on the legal landscape that must be reflected in your planning.