The Once-Per-Year Rollover Rule – What Doesn’t Count
In 2014, the Tax Court ruled that an IRA owner could do only one, IRA-to-IRA or Roth IRA-to-Roth IRA, 60-day rollover in a 12 month period. This rule applies no matter how many IRA and/or Roth IRA accounts the IRA owner might have. The 12 months is a full 12 months, not a calendar year. The 12 month period will start with the date that IRA or Roth IRA funds are received.
Example: Cindy receives a payout from her IRA on December 1st. She rolls the funds over to another IRA in January, well within the 60-day period allowed for completing a rollover. Cindy cannot do another 60-day rollover from any IRA or Roth IRA she owns until next December.
Example: Russ completed a 60-day rollover in September. His IRA CD comes due in January. Russ is planning on moving that IRA to a different bank. Russ cannot move this CD IRA as a 60-day rollover since his September rollover took place less than 12 months ago. Russ will need to do a direct transfer of the IRA funds from his current bank to the IRA at the new bank. If Russ receives a check payable to himself for the IRA balance, he will have a taxable distribution. If Russ were under age 59 ½, the 10% early distribution penalty will also apply to his distribution unless he qualifies for an exception to the penalty.
Exceptions to the Rule
As with many of the IRA rules, there are exceptions to the once-per-year rule. The rule only applies to IRA-to-IRA or Roth IRA-to-Roth IRA 60-day rollovers. Other rollovers do not trigger the once-per-year limitation. The following are the exceptions:
- Roth Conversions – a Roth conversion can be done as a 60-day rollover but it is a rollover of IRA funds to a Roth IRA not to another IRA. It doesn’t count.
- Rollovers from Employer Plans to IRAs or Roth IRAs – these also don’t count since the transaction is not an IRA-to-IRA or Roth IRA-to-Roth IRA 60-day rollover.
- Rollovers from IRAs to Employer Plans – same reasoning as above.
- Qualified Reservist Repayments – these don’t count as 60-day rollovers since the reservist has one year from the end of active duty to make the repayment instead of 60-days from the date of the distribution.
- Rollovers of First-Time Homebuyer Distributions – these also don’t count as 60-day rollovers because the homebuyer has 120 days from the date of the distribution to make the repayment.
- Rollovers of SGLI (service members group life insurance) payments to a Roth IRA – these don’t count as 60-day rollovers for two reasons; the funds do not come from an IRA or Roth IRA and the beneficiary of the insurance payout has one year from the receipt of the funds to deposit them into a Roth IRA.
While an individual is limited to one 60-day IRA-to-IRA or Roth IRA-to-Roth IRA rollover in a 12 month period, there is no limit on direct transfers. An individual can do as many transfers as they want in a 12 month period. Transfers can also cut down on the possibility of mistakes and unnecessary taxes and penalties. IRA and Roth IRA owners should use the direct transfer whenever possible and only do 60-day rollovers when there is no other choice.