Retirement Account Tax Alert!

life insurance and annuity

The IRS announced beginning as early as January 1, 2015, taxpayers can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs they own. IRS Publication 590, Individual Retirement Arrangements (IRAs), will be updated to reflect this new interpretation when it officially becomes effective.

If a taxpayer takes a distribution from their traditional IRA, they generally have 60 days to deposit the funds back into the same or another traditional IRA without declaring the distribution as gross income. This is commonly known as a rollover. The current “waiting period between rollovers” rule applies to a single IRA account; however, the new rule will apply on a taxpayer basis, regardless of the number of IRA accounts held by the taxpayer.

Taxability of rollovers is the responsibility of the taxpayer. Trustees and custodians cannot track when the 60-day window begins and have no way to determine if the taxpayer completed another rollover during the 12-month period.  Therefore, detailed taxpayer documentation of any rollover is the key to avoiding penalties and taxes.


*Under current rollover rules, the 1-year period begins on the date you receive the IRA distribution, not on the date you roll it over into an IRA.

The IRS has not yet made it clear if the “12-month period” mentioned in the IRS announcement will be measured in the same way.

Understanding the difference between a Rollover and a Direct Transfer.

Rollover:  A rollover of a retirement account occurs when the owner of the account takes constructive receipt of qualified money – usually in the form of a check issued by the custodian and made payable to the owner of the retirement account.  The retirement account owner has a 60-day window to place these funds into a new qualified retirement account in order to avoid a taxable event.

Direct Transfer:  A direct transfer is similar to the rollover with an important difference. In a direct transfer, the owner of the retirement account instructs the current custodian to transfer the funds directly to a new custodian of the retirement account owner’s choosing.  Direct transfers allow for an easy-to-track accounting of the money transfer.  As a result, the IRS allows multiple direct transfers to be made in any 12-month period.


While this report is not tax advice, it’s worth understanding the difference between a direct transfer and a rollover contribution for your retirement account. Retain the power to choose when and where to place your retirement account.

Whenever possible, you may find it beneficial to move your retirement account using the direct transfer approach rather than a rollover.  This preserves your ability to transfer your retirement account in the future without restriction from the Internal Revenue Service. For more information, the announcement can be found at:


*No Limit on Transfers: The IRS does not impose restrictions on the number of direct trustee-to-trustee transfers that may be executed in any particular time period. A direct transfer from one custodian/trustee to another is not a rollover and does not violate the one-rollover-per-year rule.

Eliminate market volatility while continuing to grow your assets.

According to the Investment Company Institute, American’s have invested trillions of dollars in publicly traded stocks. Of course, stocks rise and fall on a daily basis.  In many cases, publicly traded stocks move up and down in the same direction at the same time.  This is known as systemic risk.  In other words, the system itself is influenced by forces that change the value of every stock in the system.

In these instances, diversification between different stocks provides little protection from changes in value.  Investment advisors may not inform you of your other options simply because they do not work with those other options and cannot generate revenue from those options.  The fact is many people grow their hard-earned retirement accounts without exposure to the systemic risk described above. Some individuals select bank products, others real estate and still others choose insurance products, such as annuities, as their savings vehicle of choice.

Perhaps true diversification draws from many different disciplines rather than putting all your resources in one investment class or type such as stocks.

Improve on the return provided by banks without increasing your risk profile.

Today, insurance companies offer fixed annuities similar to bank products with terms as short as three years.  These products consistently provide more competitive returns compared to typical bank products and allow for partial penalty free withdrawals each year.  Additionally, growth inside of these annuities grows on a tax deferred basis.  I will provide direction. Like any financial product, annuities may be subject to penalties for early withdrawal.  Insurance companies call these surrender charges.  Prior to purchasing an annuity, you should meet with a qualified insurance professional to discuss the benefits and potential costs of placing your resources in an annuity.  Similar to bank products, annuities are guaranteed and backed by the financial strength of the financial institution. In the case of annuities, the guarantee is offered by the insurance company rather than a bank.

Create a lifetime income stream guaranteed to never run out no matter how long you live.

Due to healthy living choices and medical technology advances, Americans are living longer than ever before and, therefore, spending more time in retirement.  For many, this means their retirement dollars may need to last a bit longer than originally anticipated.  Fortunately, insurance company actuaries have designed lifetime income riders that, when combined with an annuity, can create a guaranteed income check no matter how long you live.

Not all income riders are created equal.  Before choosing a lifetime income benefit, be sure to evaluate the cost and understand how much the income will be and when it would be most advantageous to begin.

Generate substantial sums of tax-free cash to pay for unexpected medical expenses as you age.

Innovative life insurance policies now include cash benefits if you become medically impaired.  These funds are generally considered tax-free and can be a useful resource right when you need it most. Think of it as life insurance for the living!

Reduce your overall tax exposure.

Many people have funded their qualified retirement accounts to take advantage of tax-deferral over long periods of time.  Did you know you can also begin tax-deferring on money that is not within your retirement account?  That’s right, you can actually park your funds and begin reducing tax exposure on current earnings and you can do so without the annual contribution limits normally imposed on retirement accounts.  There are a variety of fixed annuities designed to accomplish this goal and much more.

Take the next step…

Good planning begins with a thorough evaluation of your current situation. Consider meeting with us to evaluate your risk tolerance, tax status, and your personal goals and objectives and any family situations that may affect your financial decisions. Our meetings are done without cost and remain completely confidential.

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