A recent tax court decision changes the ways IRA rollovers will be taxed.
For many years, the IRS has permitted IRAs to be rolled over, without tax
consequences, under the following two conditions:
1. The funds are rolled over into a new IRA within 60 days; and
2. Only one tax-free rollover per 12 months per IRA account.
Now, a recent tax court decision has changed the second condition for when
IRA rollovers will be taxed. Beginning January 1, 2015, taxpayers will
only be able to make one tax-free rollover per year over all of their
IRA accounts. So, a taxpayer rolling over 2 different IRA accounts in
one 12 month period would be taxed on the second rollover.
This change has profound implications for divorce agreements and decisions.
IRA rollovers are a common part of a divorce settlement. This IRS change
means that future divorce cases will need to consider either limiting
or staggering multiple IRA rollovers, to avoid being taxed.
This change is also a reminder of the importance of hiring legal counsel
that understands the tax implications of divorce. Otherwise, the divorcing
party may receive a nasty surprise when the tax bill comes due. Speak
to your attorney about this change, if you or your spouse have multiple IRAs.