No more “free loans” from your multiple IRAs

Starting with 2015, the IRS will start enforcing the new interpretation of the law which forbids the practice of taking “free loans” from multiple IRA accounts.

What does it mean?

For a long time there’s been a practice of taking distributions out of an IRA, keeping/using it for up to 60 days, and then depositing back to an IRA. A kind of free short term loan.

If a taxpayer had multiple IRA accounts, it has been the IRS position that the taxpayer could do this “trick” once a year per account.  This changed this year.

As a result of a recent court ruling (the court ruled on this position without being asked by neither the IRS nor the taxpayer), this position had to be changed. The court (in Bobrow v. Commissioner) has concluded that the IRS was interpreting the statute incorrectly, and such a “short term loan”, also known as indirect roll-over, is allowed once a year per taxpayer.

The IRS has announced it will start enforcing this new interpretation starting of the tax year 2015. That means that you have a little more than 1 month to pull that trick on your multiple IRA accounts, after which you will only be able to do it once.

This affects also people genuinely rolling over between accounts – indirect roll-over will only be allowed once a year. However, you can do unlimited direct trustee-to-trustee rollovers, which is a better way anyway.

Talk to your tax adviser (a EA or CPA licensed in your State) for a qualified tax advice on this and other issues.

Your Little (non-tax) Advisor.

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