When you leave a job or retire, you have a choice about what to do with the money you’ve saved in your 401(K). Oftentimes, people choose to rollover their 401(K) savings into an IRA to save money on fees and to gain access to new and better investments. At Ivy Ridge Asset Management in Rhinebeck, our financial advisors have helped hundreds of people successfully transfer their 401(K) earnings into a separate IRA account. If you’ve been thinking about rolling over your 401(K) to an Individual Retirement Arrangement (IRA), there are two new rules you should be aware of.

Rule #1: One-Rollover-Per-Year Ruledreamstime_xxl_71670570

In 2015, the tax court created a new rule that could throw your retirement planning into disarray. The new rule states that you can only make one rollover from an IRA to a different (or the same) IRA in a 12-month period, regardless of the number of IRAs you own. According to the IRA website, the new limit will apply by aggregating all of an individual’s IRAs, including SEP, SIMPLE IRAs and Roth IRAs, treating them as one IRA, for purposes of the limit. It’s important to note that this rule does not apply to trustee-trustee transfers and rollovers from traditional Roth IRAs are not limited.

Tax Consequences

The new one-rollover-per-year rule also comes with some tax consequences. If you receive distribution from an IRA of previously untaxed amounts, you are required to do the following:

  • You must include the amounts in gross income if you made an IRA-to-IRA rollover within the past 12 months.
  • You may be subject to a ten percent early withdrawal tax on the amounts that you included in your gross income.

If you’re not sure how the one-rollover-per-year rule will affect your income, contact the certified financial advisors at Ivy Ridge Asset Management.

dreamstime_xxl_26555499Rule #2: Inherited IRAs Are Not Retirement Accounts

Another new rule that was put in place by the Supreme Court in 2014 involves inherited IRAs. If you inherit a traditional IRA, you are considered a beneficiary. A beneficiary can be any person or entity the owner chooses to receive the benefits of the IRA after they die, however beneficiaries of a traditional IRA must include what they inherit in their gross income to be properly taxed. The rules governing inherited IRAs are significantly more complicated than the ones you would face if you were to open and fund an IRA on your own. Inherited IRAs can no longer be considered retirement accounts, which means they are now treated like all other inherited assets and it’s open season for creditors.

If you’ve inherited a traditional IRA from a parent or friend, contact the certified financial advisors at Ivy Ridge Asset Management. As a leading investment advisory firm in New York, we pride ourselves on successfully building and preserving the wealth of our clients. Schedule a free consultation with one of our certified financial planners to learn more about IRA and 401(K) rollovers, tax planning, retirement planning and more.