How Many IRA Rollovers Can You Do in a Year?

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An individual retirement account rollover is one way to move funds from another type of retirement plan, such as another traditional IRA or a 401(k), into an existing traditional IRA. It is not the same thing as a direct trustee-to-trustee transfer and will have tax implications if you complete more than one such transfer in any 12-month period.

Many people roll funds from another retirement plan into a traditional IRA after changing employers. A rollover allows you to retain control over investment choices, which you may lose if you leave funds in a previous employer’s retirement plan.

IRA Rollover Basics

With an IRA rollover, you receive a distribution from another retirement plan and then deposit it into a traditional IRA. For a qualifying rollover to be tax free, you must redeposit 100 percent of the money, including any tax withholding deduction, within 60 days. Otherwise, you’ll pay income tax on the distribution, as well as a 10 percent tax penalty if it occurs before you reach 59 ½ years of age.

For example, if you withdraw $15,000, you must roll the entire $15,000, even if the plan administrator deducts the standard 20 percent withholding amount. If you only roll over $12,000, you’ll pay income tax if any is still due and a 10 percent penalty, if it applies, on the $3,000 withholding amount.

Tip

  • If you have the option, request that a tax-free rollover distribution not include the standard 20 percent tax withholding deduction. This will help you avoid a potential tax penalty.

IRS 12-Month Rule

There is no rule preventing you from completing more than one IRA rollover per year. However, as of 2015, Internal Revenue Service rules allow for only one tax-free rollover within the same 12-month period, no matter how many IRAs you own. If you complete more than one within any 12-month period, the IRS says you must report the full amount as gross income on your annual tax return and pay income tax on the money. In addition, if you don’t complete the rollover within 60 days of receiving the money and are under 59 ½ years of age, you may also incur the 10 percent penalty.

How to Work Around the Rule

The IRS 12-month rule does not apply to direct trustee-to-trustee transfers. With a direct transfer, the plan administrator handles the transaction according to your instructions. Because you do not have to report a direct transfer on your income tax return, there are never any tax implications. For this reason, MarketWatch recommends that you use the direct transfer method if you need to transfer money from more than one retirement account within the same 12-month period.

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