How Many Days Must an IRA Be Rolled Over to Avoid Tax?
Learn the critical timing and frequency rules for moving IRA funds to ensure your rollover remains tax-free and avoid significant financial penalties.
When moving funds from one Individual Retirement Arrangement (IRA) to another, the transaction must be completed within a specific timeframe to avoid taxes. This process, an indirect rollover, involves you receiving money from your old IRA before depositing it into a new one. The Internal Revenue Service (IRS) provides a 60-day window to complete this transfer without incurring income tax. Failing to meet this deadline can lead to tax consequences, though relief may be available in certain circumstances.
Understanding the 60-Day Rollover Rule
The 60-day rollover rule is a deadline set by the IRS for completing an indirect rollover of retirement funds. The clock starts on the day you receive the distribution from your IRA, not the date the check is dated or when you requested the funds. This distinction is important, as any delay in receiving the funds shortens the time you have to complete the rollover. You must deposit the exact amount withdrawn into the new IRA no later than the 60th calendar day after receipt.
To correctly calculate the deadline, you count 60 days starting from the day after you receive the funds. If the 60th day falls on a Saturday, Sunday, or a legal holiday, the IRS extends the deadline to the next business day. Proper planning is necessary to account for mail delivery and processing times to ensure the deposit is credited before the deadline.
The Once-Per-Year Rollover Limitation
Separate from the 60-day timing requirement is the once-per-year rollover rule, which limits the frequency of indirect rollovers. An individual can only make one IRA-to-IRA indirect rollover within any 12-month period. This rule applies regardless of how many traditional, Roth, or SEP IRAs you own, as they are all aggregated for this limitation.
This 12-month period is a rolling timeframe, not a calendar year, that begins on the date you receive the distribution from the first rollover. For example, if you receive an IRA distribution on March 1, 2025, and roll it over, you cannot make another IRA-to-IRA rollover until after March 1, 2026. Violating this rule makes the second distribution taxable.
This limitation does not apply to trustee-to-trustee transfers, where money moves directly between financial institutions without you taking possession of it. Rollovers from a qualified workplace retirement plan (like a 401(k)) to an IRA are not subject to this rule, nor are conversions from a traditional IRA to a Roth IRA.
Tax Consequences of a Failed Rollover
Failing to complete a rollover within the 60-day window or violating the once-per-year rule results in the distribution being treated as a taxable event. The entire amount you withdrew is considered ordinary income for the tax year in which you received the funds. This can increase your tax liability, potentially pushing you into a higher tax bracket for that year.
Beyond the income tax, if you are under the age of 59 ½, the distribution is subject to an additional 10% early withdrawal penalty. For example, if a 45-year-old withdraws $50,000 from a traditional IRA and fails to roll it over, the full $50,000 is added to their taxable income. Assuming a 22% federal tax bracket, this would result in $11,000 of income tax, plus an additional $5,000 early withdrawal penalty.
If you deposit the funds into an IRA after the 60-day period or in violation of the once-per-year rule, the invalid rollover is treated as an excess contribution. Excess contributions are subject to a 6% excise tax for each year they remain in the account until the excess amount and any associated earnings are removed.
Requesting a Waiver for the 60-Day Rule
If you miss the 60-day deadline due to circumstances beyond your control, the IRS provides avenues for relief. The most accessible method is self-certification, which allows you to complete a late rollover without prior IRS approval if you meet one of several specific reasons outlined by the IRS. These reasons include:
- Errors by the financial institution
- A misplaced and uncashed distribution check
- Severe illness
- A postal error
To use this option, you must make the rollover contribution as soon as practicable after the reason for the delay no longer exists. You must also provide a letter to the new IRA custodian certifying your eligibility.
The self-certification is not an automatic waiver from the IRS; it is a representation you make to the financial institution. If the IRS later audits your return, it could determine you did not qualify, leading to taxes and penalties.
For situations not covered by the approved reasons for self-certification, you must request a private letter ruling (PLR) from the IRS. This is a formal and costly process where you submit a request explaining why failing to grant a waiver would be against equity or good conscience. The user fee for a PLR request can be substantial.