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IRA Rollovers - A Lot Like A Birthday

Every reader of this article should have an IRA established. Whether a Roth or a traditional IRA, it's the must have financial tool. It allows you a tax-favored method to save for later in life when you won't be able to run and dance and work like you once could.

An IRA is held by a custodian - a financial institution who keeps the account invested in permitted investments as you direct.

Once you save and grow your IRA balances, you may consider moving from one custodian to another. If performed according to the law, that move remains non-taxable. Be careful here. The best choice is to direct the funds to move directly from the old to the new custodian. You don't want to take a check payable to you unless you will redeposit all the money into an IRA account with the new custodian within 60 calendar days.

There's a new Tax Court ruling affecting the number of times an IRA can be rolled over.

In the Bobrow case (TC Memo 2014-21) the Court ruled that a taxpayer can only perform one IRA rollover every 365 days. Prior to this, a given IRA account could be involved in a rollover no more than once every 365 days. For a taxpayer with multiple IRA accounts this could get expensive, because the rollover could become subject to tax and penalty otherwise. (That could be more than 50% of the amount rolled over for some folks).

Be sure your financial advisor and tax professionals know about this.

The good news is the IRS proposes to not enforce the new rule until 2015.

My proposal is to name this the Bobrow birthday rule - only rollover an IRA on your birthday so you don't accidently pay tax.

Don't like my idea? Please add comments with your ideas for a name for this new ruling.

And, get out there and enjoy the spring.

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