How Many IRA Rollovers Can You Do Per Year?
Navigate the rules for moving your retirement funds. Understand annual IRA rollover limits, different transfer methods, and how to avoid costly penalties.
Individual Retirement Account (IRA) rollovers allow assets to maintain their tax-deferred status, continuing to grow without immediate tax implications. Understanding the specific rules governing how many rollovers an individual can perform each year is important for avoiding unexpected taxes and potential penalties.
Differentiating Rollover Methods
Understanding the distinctions between various methods of moving retirement funds is important. An indirect rollover, sometimes referred to as a 60-day rollover, involves the account holder directly receiving the funds. The individual then has 60 days from the date of receipt to redeposit the full amount into another eligible retirement account. This method is the one most commonly associated with and affected by the “one-rollover-per-year” rule.
Conversely, a direct rollover occurs when funds are transferred directly from one retirement plan administrator or custodian to another, bypassing the account holder’s direct possession. This method is often used when moving funds from an employer-sponsored plan, such as a 401(k), to an IRA. A trustee-to-trustee transfer is similar, involving the direct movement of funds between two custodians of the same type of account, such as from one IRA custodian to another IRA custodian. In both direct rollovers and trustee-to-trustee transfers, the money never passes through the account holder’s hands, which is a key differentiator.
These direct methods generally do not count towards the annual rollover limitation. Choosing the correct method prevents unintentional tax consequences and penalties.
The One-Rollover-Per-Year Rule
The Internal Revenue Service (IRS) imposes a limitation on indirect IRA-to-IRA rollovers. Individuals are generally limited to one such rollover in any 12-month period. This rule applies to all of an individual’s IRAs collectively, meaning if you complete an indirect rollover from one IRA, you cannot perform another indirect rollover from any of your IRAs for the next 12 months.
The 12-month period begins on the date the individual receives the distribution from the IRA, not when the funds are redeposited or by the calendar year. For instance, if an indirect rollover distribution is received on July 1, 2025, another indirect IRA-to-IRA rollover cannot be initiated until July 1, 2026. The intent behind this regulation is to prevent individuals from using their tax-advantaged retirement funds as short-term, interest-free loans by repeatedly withdrawing and redepositing the money.
Rollovers Not Subject to the Limit
Several types of retirement fund movements are not subject to the one-rollover-per-year rule, providing individuals with flexibility in managing their retirement savings. Trustee-to-trustee transfers, where funds move directly between financial institutions without the account holder taking possession, are unlimited in number. This method is often the recommended approach for moving IRA funds between custodians.
Direct rollovers from employer-sponsored plans, such as 401(k)s, 403(b)s, or 457(b)s, into an IRA are also exempt from this annual limit. Individuals can perform multiple direct rollovers from employer plans to IRAs within a year if needed. Furthermore, rollovers between different employer plans, such as from one 401(k) to another 401(k), do not count against the IRA rollover limit.
Conversions from a traditional IRA to a Roth IRA, commonly known as Roth conversions, are not subject to the one-rollover-per-year rule for indirect rollovers. While these conversions are taxable events, there is no limit on how many can be performed annually. Similarly, rollovers from an IRA to an employer-sponsored plan are also not restricted by the one-per-year rule. It is important to note that indirect rollovers between Roth IRAs are subject to the one-per-year rule, similar to traditional IRA indirect rollovers.
Penalties for Exceeding the Limit
Exceeding the one-indirect-IRA-to-IRA-rollover-per-12-month-period rule can lead to financial repercussions. If an individual performs a second indirect IRA rollover within the 12-month period, the subsequent distribution is treated as a taxable distribution from the IRA. The entire amount of this improper rollover becomes part of the individual’s gross income for that tax year.
In addition to being taxed as ordinary income, if the account holder is under age 59½, an additional 10% early withdrawal penalty may be applied to the taxable amount. This penalty is imposed unless a specific IRS exception applies. The improperly rolled over amount is also considered an excess contribution to the receiving IRA.
Excess contributions are subject to a 6% excise tax for each year the excess remains in the account. This recurring penalty can accumulate over time, making it costly if not corrected promptly.