No matter how many IRAs you own, you can now only do one 60-day rollover in a 12-month period. Thinkstock By Rachel L. Sheedy, Editor From Kiplinger's Retirement Report, January 2015 As you ring in the New Year, be mindful of a new IRS rule on IRA rollovers. Of all the rule changes in the recent past, this is the one "that will catch people most off guard and create the most problems," says Jeffrey Levine, IRA technical consultant for Ed Slott and Co., which provides IRA advice. "It is going to cost people a lot of money in their retirement accounts."See Also: IRAs Special Report Starting in January, taxpayers can only perform one 60-day IRA rollover in a 12-month period, no matter how many IRAs they own. All of a taxpayer’s traditional and Roth IRAs “will essentially be treated as one IRA,” says David Lyon, chief executive officer of Main Street Financial, in Chicago. Previously, the one-per-12-month rule could be applied to each IRA you owned. Say your New Year's resolution is to cut your investment expenses, and you plan to move your traditional IRA and your Roth IRA to a new investment firm that offers cheaper fees. The custodians of the two accounts write checks payable to you. Within 60 days, you put the checks into a new traditional IRA and a new Roth IRA. Under the new rule, one of those rollovers will not be allowed -- and you'll get hit with tax penalties. Advertisement You can avoid the tax bite by having the custodians of the IRAs directly transfer your money to IRAs at the new firm. Trustee-to-trustee transfers can be done an unlimited number of times a year. The IRS recently clarified that a check made payable from one IRA custodian to another IRA custodian will count as a direct transfer -- even if the check is in your hands. "The overwhelming message here is if you are moving money from one IRA to another, use the transfer method," says Denise Appleby, of Appleby Retirement Consulting, in Grayson, Ga. While the rule applies to rollovers between traditional IRAs and between Roth IRAs, it doesn't apply to rollovers from a traditional IRA to a Roth IRA. Thus, you can still do an unlimited number of Roth conversions. The rule also does not apply to rollovers from 401(k)s to IRAs. As a transition to the new rule, the IRS is giving taxpayers a "fresh start" for 2015 by ignoring 2014 rollovers. If you do a rollover in, say, December 2014, you are allowed to do another rollover in 2015 without having to worry about the time limit. But there's a catch: The 2015 rollover cannot be from IRAs involved in any 2014 rollovers. You would have to use different IRAs to do a 2015 60-day rollover. Advertisement Tripping the Rollover Wire If you make a mistake on the new 60-day rule, you can't undo your error, says Paul Jacobs, chief investment officer of Palisades Hudson Financial Group, based in the Atlanta office. It is "the most interesting and dangerous part of the new rule," he says. "Once you request that second distribution, there's no way to reverse it." For example, if you roll over $100,000 of traditional IRA money and then try to roll over another $50,000, that $50,000 will become taxable income. Plus, if you put the money into the second IRA, you'll be subject to the 6% penalty on excess contributions. The penalty applies to money that exceeds the annual IRA contribution limit of $5,500, plus a $1,000 catch-up contribution if you're 50 or older. "You're getting hit from all sides," Appleby says. In the example above, the first $100,000 rollover would not be penalized. But you'll owe a 6% penalty on the second $50,000 rollover (minus any amount that could qualify as an annual IRA contribution). Penalties rack up each year the money stays in the account, so it's important to take the money out as soon as possible. Levine says a taxpayer needs to make sure the custodian codes the distribution as a withdrawal of excess contributions so that it shows up properly on the Form 1099 that goes to the IRS. Advertisement If you realize you have taken an extra distribution within 60 days of receiving a check from a traditional IRA, there is a workaround, says Levine. You could convert the traditional IRA money to a Roth IRA, since the new rule doesn't affect Roth IRA conversions. If you don't want to owe tax on the conversion, you could then recharacterize the conversion before October 15 of the next year.