How Many Rollovers Can I Do in a Year?

Moving funds between retirement accounts often involves rollovers. These transfers help consolidate old employer plans or gain more control over investment choices. Rollovers are subject to specific Internal Revenue Service (IRS) regulations designed to maintain the tax-deferred status of your retirement assets. Understanding these rules is important to avoid unintended tax consequences and ensure your savings continue to grow as intended.

Understanding the One-Rollover-Per-Year Rule

The IRS imposes a “one-rollover-per-year” rule for indirect Individual Retirement Account (IRA) rollovers. This rule limits an individual to one indirect rollover from any of their IRAs to another IRA within a 12-month period, regardless of how many IRAs they own. All of an individual’s IRAs, including traditional, Roth, SEP, and SIMPLE IRAs, are considered a single entity for this purpose.

An indirect rollover occurs when funds are distributed directly to the IRA owner, who then has 60 days to deposit the money into a new or existing IRA. If the funds are not redeposited within this 60-day timeframe, the distribution becomes taxable income and may also incur a 10% early withdrawal penalty if the individual is under age 59½. This 60-day limit begins on the day the individual receives the distribution, not when the check is issued.

For example, if an individual takes an indirect distribution from a traditional IRA and rolls it into another traditional IRA in March, they generally cannot perform another indirect IRA-to-IRA rollover from any of their IRAs until the following March. This rule applies even if the subsequent rollover involves different IRA accounts.

This 12-month period is not a calendar year, but a rolling 365-day period starting from the date the individual receives the distribution from the first indirect rollover. Adhering to this specific timeline is crucial for maintaining the tax-deferred status of the funds. The IRS rarely waives the 60-day requirement.

Transactions Not Subject to the Rule

While the one-rollover-per-year rule is strict for indirect IRA-to-IRA rollovers, many common retirement fund transfers are exempt. Understanding these distinctions helps individuals manage their retirement assets without inadvertently triggering adverse tax consequences. These exemptions provide flexibility for various financial planning needs.

A primary exception is a trustee-to-trustee transfer, also known as a direct transfer. In this scenario, funds move directly from one IRA custodian to another without the account holder ever taking possession of the money. Since the funds are not distributed to the individual, these transfers are not considered rollovers for the purpose of the one-rollover-per-year rule and can be performed as frequently as needed. This method is generally recommended as the safest and most efficient way to move IRA assets, as it avoids tax withholding and the risk of missing the 60-day deadline.

Direct rollovers from employer-sponsored plans, such as a 401(k) or 403(b), to an IRA are also not subject to the one-rollover-per-year rule. When funds are transferred directly from an employer plan to an IRA, the transaction is treated differently than an IRA-to-IRA indirect rollover. This means an individual can roll over funds from multiple employer plans to an IRA, or even multiple times from the same employer plan, within a 12-month period without violating the rule.

Conversions from a traditional IRA to a Roth IRA are not subject to the one-rollover-per-year rule. A Roth conversion is a taxable event where pre-tax funds are moved to a Roth account, becoming tax-free in retirement, and it is categorized differently from a rollover. Individuals can perform Roth conversions as often as they wish, provided they understand the income tax implications of converting pre-tax amounts.

Implications of Exceeding the Limit

Exceeding the one-rollover-per-year rule for indirect IRA-to-IRA transfers can lead to tax penalties and complications. If an individual performs more than one indirect IRA rollover within a 12-month period, the subsequent rollover is considered an invalid or “failed” rollover. The distributed amount from the second rollover will be treated as ordinary taxable income in the year it was received.

Beyond being fully taxable, the distributed amount may also be subject to an additional 10% early withdrawal penalty if the individual is under age 59½. This penalty is applied on top of the regular income tax. For instance, a $10,000 second rollover could result in $10,000 of taxable income and a $1,000 penalty if the individual is under 59½.

Attempting to deposit the funds from a failed rollover into an IRA can also result in the amount being treated as an “excess contribution.” Excess contributions are subject to a 6% excise tax each year they remain in the IRA until corrected. This 6% penalty applies annually to the excess amount. Individuals must report these distributions on their tax return, typically on Form 1099-R, and may need to file Form 5329 for additional taxes on qualified plans.

Rollovers Involving Employer-Sponsored Plans

The one-rollover-per-year rule specifically targets indirect IRA-to-IRA rollovers and does not apply to transactions involving employer-sponsored retirement plans. This distinction offers greater flexibility for managing assets held in workplace accounts. The IRS rules for employer plans differ significantly from those for IRAs.

Individuals can perform multiple rollovers from an employer-sponsored plan, such as a 401(k) or 403(b), to an IRA within a 12-month period. This applies whether the rollover is direct or indirect. For example, if an individual leaves two different employers in the same year, they can roll over their 401(k) from both plans into an IRA without violating the one-rollover-per-year rule.

Similarly, rollovers between different employer-sponsored plans are also exempt from this rule. An individual can transfer funds from a 401(k) at a former employer to a 401(k) at a new employer, or from one 401(k) to another, multiple times a year. These direct transfers between employer plans or from employer plans to IRAs are not subject to the same frequency limitations as indirect IRA-to-IRA rollovers.

While an individual is limited to one indirect rollover between IRAs every 12 months, they have far more leeway when moving money out of employer-sponsored plans. This flexibility allows individuals to consolidate retirement assets, especially when changing jobs, without being constrained by the IRA rollover frequency rule.