3 Money Traps You Need to Watch Out For

By Ray Ferrara

NEW YORK (AdviceIQ) -- The world of finance has traps for the unwary. Even in a bull market, they can harm you, so it pays to be on the lookout. The three that are most insidious: more complex rules on IRA rollovers, tax scams and too-high margin debt.

A run-down of these problems, for the cautious:

IRA rollovers. In a major surprise, the U.S. Tax Court recently changed 20 years of individual retirement account procedures. Two ways exist to move money from one IRA to the other. First, you can do a direct transfer where the money shifts from one custodian to another without passing through the IRA owner's hands. This type of transfer can be done as often as the IRA owner desires.

It's the second method that the court-mandated change affects. In this type of transfer, the IRA owner withdraws the money from the account. As long as the owner rolls over the money within 60 days, there is no tax, nor penalty. But the IRA owner could only do this once per 12 months (calendar months, not calendar year) for each IRA according to Internal Revenue Service publication 590. In other words, if you had six IRAs, you could withdraw from each of them once every 12 months and roll over within 60 days.

Now, according to the new Tax Court case, you must aggregate the IRAs, and if you move one of the six, you cannot move any of the six for another 12 months. Of course, you could still do a direct transfer without any problem.