If you are planning to move funds from one IRA account to another, be sure you understand new rules related to IRA rollovers.  Old rules allowed taxpayers to rollover (transfer funds) from each IRA account once every 12 months, regardless of how many IRA accounts the taxpayer owns.  This meant that a person with 4 separate IRA accounts could do 4 rollovers each year.

A rollover is considered not taxable if you deposit the amount into another eligible plan (including an IRA) within 60 days of making the withdrawal from your IRA.  This created the potential for having free use of the rollover funds for 60 days, with some taxpayers doing this several times per year.

IRA rollover limits

Now the new rules limit each taxpayer to a total of one rollover per 12-month period, regardless of how many IRAs they own. Spouses are considered separate individuals for this purpose, so a rollover by one will not limit the other.

The new rules still allow unlimited trustee-to-trustee transfers.  These are transfers among your IRAs, where the trustee will wire the funds into your new IRA account directly,  without the funds going through you first. Trustee-to-trustee IRA transfers are not considered rollovers, so the limitations do not apply.

The IRS will ignore 2014 rollovers in determining the 2015 limit, as long as the IRA rolled over in 2015 is not one of those that was rolled over in the previous 12 months. As an example, say you have three IRAs and you rolled two of them over in June 2014. In 2015, you can rollover the third IRA, but not the other two.

What happens if you go over the rollover  limit?

If you make a second rollover within the 12-month window, you will be taxed on the entire amount withdrawn plus an additional 10% if you are subject to the early withdrawal penalty. You will also pay a 6% penalty on any amount put into the destination IRA if it is over your allowable annual contribution amount. The 6% penalty will be reapplied for each year the money remains in the account.  This can be a costly error over time.

The change affects both traditional and Roth IRAs, which are lumped together in determining the limitation. The only exceptions are (a) conversions from traditional IRAs to Roth IRAs, and (b) rollovers into IRAs from 401(k) accounts.

Rollover mistakes can create significant tax liabilities. Please consult your tax professional if you are considering transferring money between your IRAs.