The IRA rollover rules are always tricky. However, if you are rolling over an IRA distribution when the calendar year changes, the rules can become especially challenging. Here are four things you need to know about rollovers as the year 2024 ends and the year 2025 arrives.
1. A distribution taken in one year can be rolled over in the next year.
Surprisingly, sometimes IRA owners have doubts as to whether a distribution taken in one calendar year can even be rolled over in the next. There is no problem with this! Nothing prevents you from taking an IRA distribution in December of 2024 and rolling it over in January of 2025. Just be sure that you follow all the rollover rules that always apply, such as the 60-day rollover deadline.
2. Report the rollover on your 2024 tax return.
Another concern you may have is how to handle a distribution from your IRA in 2024 that you roll over in 2025 on your tax return. Do you report this transaction on your 2024 tax return or wait for 2025? Here is how it works. The IRA custodian will report the distribution from your IRA on a 2024 Form 1099-R. The rollover will be reported by the IRA custodian on a 2025 Form 5498. You will report the distribution and the rollover on your 2024 federal income tax return.
3. Watch out for the once-per-year rollover rule.
Do not fall for a common misunderstanding of the one-rollover-per-year rule. The rule says that you may only roll over one distribution from all of your IRAs in a one-year period. The one rollover per year does not apply on a calendar year basis. It begins with the date you receive the distribution you later roll over. A new calendar year does not mean you have a clean slate. If you take an IRA distribution on December 15, 2024, and roll it over in January of 2025, you may not roll over another IRA distribution until December 16, 2025.
4. Be sure to calculate your 2025 RMD correctly.
A rollover that is outstanding at the end of the year can affect your 2025 RMD. If you take a distribution in 2024 and complete a rollover of those funds in 2025, you must include the amount rolled over in your December 31, 2024, fair market value when calculating your 2025 RMD. This rule prevents IRA owners from avoiding RMDs by having an IRA balance of zero on December 31. You cannot escape your RMD by emptying out your IRA in December and then rolling over the funds in January.
Specializing in private wealth management, we provide education, guidance, and strategies to help you achieve a tax-efficient retirement income.
Specializing in private wealth management, we provide education, guidance, and strategies to help you achieve a tax-efficient retirement income.
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