2015 Changes to IRAs You Need to Know

No More Unlimited 60-Day Rollovers

In an earlier post, I explained how one could take a continuous, tax-free, penalty-free loan from their IRAs. Since you can remove money from an IRA and use the funds for 60 days per year, if you had 6 IRAs, then you could have a year-round tax-free, penalty-free loan to yourself (6 x 60=360 days).

No more says the Tax Court.

Now, you can’t make a non-taxable, penalty-free rollover from one IRA to another if you have already made a rollover from any of your IRAs in the preceding 1-year period (Bobrow v. Commissioner, T.C. Memo. 2014-21). So the idea of splitting an IRA into several pieces and using the 60-day rollover rule for each piece no longer works. IRS now views all of your IRA accounts as ONE account for the purpose of the "60-day rollover within 12 months" rule.

Of course, the rollovers mentioned above are physical withdrawals of money. You may still transfer (where one institution sends the funds directly to the other custodian) without limit between custodians. However, this is of no "loan" value as you don't get to touch the money.

IRA Protection in Bankruptcy is Limited

Since 2005, the first million (now indexed to $1,245,475) of IRA and Roth IRA accounts are exempt assets in bankruptcy meaning your creditors cannot seize or attach them. And amounts in employer plans (such as 401k, pension, etc.) are protected from bankruptcy to an unlimited amount.

Note: the above applies when bankruptcy is filed and does not mean that a creditor cannot get at these assets prior to bankruptcy. Whether your IRA assets are protected in any way from creditors when a bankruptcy is not involved is determined by individual state law.

However, the Supreme Court ruled (2014) that inherited IRAs will get no bankruptcy protection. The court says that the intent of the law is to protect "retirement" assets and inherited IRAs are not retirement assets because

Account holders cannot add money to inherited IRAs like IRA owners can to their own accounts.
Account holders of inherited IRAs must generally begin to take RMDs (required minimum distributions) in the year after they inherit the account, regardless of how far away they are from retirement. For instance, a grandchild that inherits an IRA at one-year old must begin taking RMDs by the time they are two. It's hard to see how that can be for their retirement.
Account holders can take total distributions of their inherited accounts at any time and use the funds for any purpose without a penalty.

So we see that an inherited IRA is vastly different in its nature than a retirement account and thus gets no special protection in bankruptcy. Note that IRAs inherited by spouses still appear protected under the bankruptcy law as the spouse can combine such amounts with their own IRA assets and are thus treated as retirement funds.