IRS inbound rollover guidance may both help and hinder

by Ascensus
by. Todd Berghuis
Retirement plan rollovers are a high priority for the IRS these days.  That is not a criticism, because the portability of retirement savings is essential to workers if they are to have the maximum opportunity to retain IRA and employer plan assets for a financially secure retirement.

Perhaps the rollover issue getting the most attention has been the IRS’s declaration in Announcement 2014-15 that it will change its stance and limit taxpayers to one IRA rollover per 12 months, regardless of how many IRAs an individual has.  Some have suggested that the agency itself “rolled over” by abandoning a position it held for over 40 years, which had allowed one rollover per IRA per 12 months.   But it is pretty hard for the IRS to ignore a U.S. Tax Court decision (Bobrow v. Commissioner), which prompted the reversal.

More recently, the IRS issued guidance intended to give employers some comfort and certainty when their plans accept employee rollovers from IRAs or other retirement plans.  This guidance, Revenue Ruling 2014-9, provides several practices which, if followed, may serve as evidence that the administrator of the recipient retirement plan took the necessary steps to determine whether assets being received into the plan were eligible for rollover.

Under Treasury Regulations, a plan administrator will jeopardize the qualified status of a plan with respect to  a rollover unless two conditions are met.  The administrator must “reasonably conclude that the rollover contribution is valid,” and if it later proves otherwise, “distribute the ineligible rollover contribution, with earnings, within a reasonable time of discovering the error.”

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