How Long to Rollover Funds From an IRA or Qualified Plan?
Understand the time-sensitive rules for moving retirement assets. A successful rollover requires meeting key deadlines to avoid unintended taxes and penalties.
Moving funds from one retirement account to another, known as a rollover, allows for the transfer of assets from a former employer’s 401(k) into an Individual Retirement Arrangement (IRA) or between IRAs. The primary benefit is the continued tax-deferred growth of retirement savings. To receive this tax-free treatment, you must follow specific time-based rules from the Internal Revenue Service (IRS), as failing to meet these deadlines can result in tax consequences.
The Standard 60-Day Rollover Period
The primary timing constraint for moving retirement funds is the 60-day rollover rule. This rule applies to an indirect rollover, where you take a distribution from a plan like a 401(k) or an IRA and receive the funds directly. From the moment of receipt, you have a 60-day window to deposit those funds into another eligible retirement account to maintain their tax-advantaged status.
In contrast, a direct rollover involves transferring funds from one financial institution to another without the account holder ever taking possession of the money. The 60-day rule does not apply to these trustee-to-trustee transfers, which are a simpler and safer method.
The 60-day clock starts the day after you receive the distribution. If the 60th day falls on a weekend or holiday, the deadline is extended to the next business day. If you miss the deadline, the entire distributed amount is considered taxable income for that year. If you are under age 59½, the distribution may also be subject to a 10% early withdrawal penalty.
Another complication with indirect rollovers from an employer plan like a 401(k) is mandatory tax withholding. The plan administrator must withhold 20% of the distribution for federal income taxes. To complete a full rollover of the original amount, you must use your own funds to make up for this 20% and can reclaim the withheld amount when filing that year’s tax return.
The Once-Per-Year Rollover Limitation
A separate rule, the once-per-year limitation, governs the frequency of certain rollovers. This rule only restricts rollovers between IRAs, permitting only one tax-free, 60-day rollover from one IRA to another within any 365-day period. This period begins on the date the distribution is received.
The rule applies to all of an individual’s IRAs, including Traditional, Roth, SEP, and SIMPLE IRAs, treating them as a single entity for this purpose. For example, if you take a distribution from a Traditional IRA and roll it into another, you cannot make another 60-day rollover from any of your IRAs for the next 365 days. A violation results in the second distribution being treated as taxable income and potentially subject to the 10% early withdrawal penalty.
This limitation does not apply to rollovers from a qualified employer plan, like a 401(k), into an IRA, or from an IRA back into a qualified plan. Direct trustee-to-trustee transfers between IRAs are also exempt, and an individual can initiate an unlimited number of them. Roth conversions are not counted toward this limit either.
Obtaining a Waiver of the 60-Day Deadline
If you miss the 60-day rollover deadline due to circumstances beyond your control, the IRS provides avenues for relief. There are two methods for securing a waiver: self-certification for specific reasons or applying for a private letter ruling (PLR) from the IRS.
The more accessible method is self-certification, which allows a late rollover if the failure to meet the deadline was due to one of several acceptable reasons. These include:
- Errors made by the financial institution
- A misplaced and uncashed distribution check
- A distribution being made to a state’s unclaimed property fund
- The death or serious illness of a family member
- Severe damage to the individual’s principal residence
- Postal error
To use this method, you must submit a written letter to the financial institution receiving the funds, certifying that you meet the conditions for a waiver. The rollover must be completed as soon as practicable after the reason for the delay no longer exists, which the IRS considers to be within 30 days.
If your reason for the delay is not approved for self-certification, the only other option is to request a PLR. This formal process involves submitting a detailed request and paying a user fee that can exceed $10,000. This path is for complex situations that do not fit the self-certification criteria.