If you’re considering rolling over or transferring an IRA, you may have heard of the “60-day rule.” Some people get confused about what the rule is, and if it applies to their situation. Let’s put the confusion to rest: here’s what you need to know.
60-day rollover rule explained
When you roll over your retirement account from one account to another, you have 60 days to place the funds you took out, or “distributed,” into a qualified IRA or retirement account. Otherwise, you potentially face taxes and a 10-percent penalty if you’re under the age of 59½. This is known as the “60-day rollover” rule.
The IRS only allows this distribution rollover to occur once in a 12-month period across all IRAs you own.
Here’s where people sometimes get confused:
60-day distribution rollover vs. transfers and direct rollovers: what’s the difference?
Some people mistakenly believe the 60-day rule applies to their situation when, in fact, it doesn’t. For example, they think they can only roll over or transfer funds directly from one account to another only once a year, confusing a direct rollover or transfer with the 60-day rollover rule.
When you perform a transfer or direct rollover, you are not taking active receipt of your funds. Therefore, this does not count toward the once-in-a-12-month-period time frame.
Has this rollover rule changed recently?
There have been no changes to the rule, but there has been recent guidance from the IRS. Several years ago, the guidance was that you could perform one of these 60-day rollovers “once a year from each account.” This would allow someone to open several different accounts and take a distribution and return the funds within 60 days, creating a revolving use of tax-privileged funds.
The IRS released updated guidance stating that you can only do this once in a 12-month period across all IRA accounts.
Video: 4 Ways to Fund a Self-Directed IRA
What to know: rules for various types of account movements
• Transfers: No limit, provided they are trustee-to-trustee • Rollovers: No limit, provided it is a direct rollover • 60-day distribution rollovers: Only allowed once in a 12-month period across all accounts • Roth Conversion: No limit providing it is a direct conversion
Can I roll over a 401(k) account into a self-directed IRA?
Yes. A self-directed IRA gives you the ability to diversify your portfolio with additional investments that are permitted by the IRS, in a tax-free or tax-deferred environment.
2
Is there a limit to the number of rollovers I can do a year?
You can complete one rollover per 12-month period. The 12-month period begins on the date you receive the funds/assets, not the date the funds/assets were sent to you from your IRA custodian.
If a second distribution is made during the 12-month period it will not be eligible for rollover. This means the distribution is a taxable event and is subject to the 10-percent penalty tax, if applicable. In addition, those funds cannot be validly deposited into your account as a rollover contribution. They will be treated as a regular contribution for the current year, which may result in an excess contribution.
3
What is a rollover?
A rollover occurs when you request a distribution from an IRA or a Qualified Retirement Plan and then “roll” the assets into an IRA. There are three types of rollovers: an IRA rollover, a Qualified Retirement Plan rollover, and a Qualified Retirement Plan Direct rollover.
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