Avoid Rollovers of IRA CDs
A new tax rule could create problems for investors who roll money from matured IRA certificates of deposit into new IRA CDs.

It's not unusual for a retiree to own multiple IRA certificates of deposit at once. When one CD matures, the bank will likely close the IRA and hand you a distribution check. You then roll the money into a new IRA CD, often at another bank that's offering a higher interest rate. You repeat the process when the next CD expires. A new court ruling, however, can foul up the process.
Until recently, if you owned more than one IRA, you could roll over each one once a year. As long as you completed the switch within 60 days of the payout, there was no tax. Now, thanks to a U.S. Tax Court opinion, such IRA CD rollovers could be "very risky" for older investors, says Natalie Choate, an estate-planning lawyer with Nutter, McClennen and Fish, in Boston.
The court ruled that the once-a-year rollover limit applies to the investor, not to the individual IRA. No matter how many IRAs you own, only one rollover is permitted in any 12-month period. The IRS announced it will not enforce the ruling until 2015.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
You can avoid trouble by using direct IRA-to-IRA transfers rather than 60-day rollovers. With a transfer, the first bank with the maturing CD sends the money directly to the second bank, and you are never in possession of the money. "You can make as many direct transfers in a year as you want without any worries," says Jeffrey Levine, IRA technical consultant with Ed Slott and Co., in Rockville Centre, N.Y.
To use the direct-transfer method, first find out when your CD matures. Then find a bank with a better rate. Before the old CD comes due, open an IRA at the second bank and ask about any paperwork you must fill out to transfer the money. Make sure the second bank does not send the paperwork until the CD matures, or you'll likely pay an early-withdrawal penalty. If you want to stick with the same bank, ask about its transfer procedure.
Although the IRS says it will hold off enforcing the new rule, Levine encourages IRA owners to follow it immediately. It's unclear when the 365-day clock begins. For instance, if you do a rollover in September this year and then another in March, it's possible the IRS could look at the March rollover as the second one in the 12-month period.
Haven't yet filed for Social Security? Create a personalized strategy to maximize your lifetime income from Social Security. Order Kiplinger’s Social Security Solutions today.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

-
President Trump Makes Markets Move Again: Stock Market Today
The White House is moving ahead with plans to reshape the Federal Reserve and to buy shares in more sectors and stocks.
-
Is the ‘Pumpkin Spice Tax’ Coming for Your Fall Coffee Budget?
Food Taxes Inflation pressures, tariffs, and talk of the so-called 'pumpkin spice tax' have some wondering about rising coffee prices.
-
Will You Get a ‘Surprise’ Tax Bill on Your Social Security Benefits in Retirement?
Retirement Taxes Social Security benefit payments might land you in hot water when filing 2025 taxes — here are three reasons why.
-
Ask the Editor, August 22: Tax Questions on What Congress Will Do Next
Ask the Editor In this week's Ask the Editor Q&A, we answer questions from readers on what Congress will do next with taxes.
-
Ask the Editor, August 15: Tax Questions on the OBBB, Tax Rates
Ask the Editor In this week's Ask the Editor Q&A, we answer tax questions from readers on the OBBB and changes, if any, to tax rates.
-
Ask the Editor, August 8: Tax Questions on Roth IRA Conversions
Ask the Editor In this week's Ask the Editor Q&A, we answer tax questions from readers on converting a traditional IRA to a Roth IRA.
-
Ask the Editor, August 1: Tax Questions on Standard Deductions
Ask the Editor In this week's Ask the Editor Q&A, we answer tax questions from readers on claiming standard deductions on your tax return.
-
Ask the Editor, July 25: Questions on Four New Tax Deductions
Ask the Editor In this week's Ask the Editor Q&A, we answer tax questions from readers on four new tax deductions in the "One Big Beautiful Bill."
-
Five Ways Trump’s 2025 Tax Bill Could Boost Your Tax Refund (or Shrink It)
Tax Refunds The tax code is changing again, and if you’re filing for 2025, Trump’s ‘big beautiful’ bill could mean a bigger refund, a smaller one or something in between next year. Here are five ways the new law could impact your bottom line.
-
Ask the Editor, July 18: Questions on the $6,000 Senior Deduction
Ask the Editor In this week's Ask the Editor Q&A, we answer tax questions from readers on the new $6,000 deduction for taxpayers 65 and older.