How Many Rollovers Can You Do in a Year?

Individual Retirement Arrangements (IRAs) offer flexibility for growing retirement funds on a tax-advantaged basis. The Internal Revenue Service (IRS) has established clear guidelines for these transactions to maintain their tax-deferred or tax-free status.

Understanding the One-Rollover-Per-Year Rule

An “indirect rollover” occurs when an IRA account holder receives a distribution of funds and then personally redeposits those funds into another eligible retirement account within 60 days. This method differs from a direct transfer where funds move between financial institutions without the account holder taking possession. The IRS permits only one such indirect IRA-to-IRA rollover for an individual within any 12-month period, regardless of how many IRAs the individual owns.

This rule applies to the taxpayer, not to each individual IRA account. For instance, if a person performs an indirect rollover from one traditional IRA to another, they cannot complete another indirect IRA rollover from any of their IRAs for the next 12 months. Failure to meet this 60-day deadline can result in the distribution being treated as taxable income.

Rollovers Not Subject to the Rule

Many types of transfers and rollovers are not subject to the one-rollover-per-year limit. One common method is a direct trustee-to-trustee transfer, where funds move directly from one financial institution to another. This transaction is not considered a distribution to the account holder, meaning it can be performed as often as needed without restriction. No taxes are withheld during a direct transfer, preserving the full amount of the retirement savings.

Moving funds from an employer-sponsored retirement plan, such as a 401(k) or 403(b), into an IRA also does not count toward the one-rollover-per-year IRA limit. This type of rollover, whether direct or indirect, is distinct from an IRA-to-IRA rollover. Similarly, converting funds from a traditional IRA to a Roth IRA is classified as a conversion, not a rollover, for the purpose of this rule. Individuals can perform Roth conversions as frequently as desired.

Furthermore, if an employer-sponsored plan permits, rolling funds from an IRA into such a plan is also exempt from the one-rollover-per-year rule. Moving investments within the same IRA account at the same financial institution also does not trigger the rule, as this is simply a change in investment allocation, not a distribution or transfer between different accounts.

Implications of Exceeding the Rollover Limit

Exceeding the one-indirect-IRA-rollover-per-year limit can lead to significant financial repercussions. If an individual performs more than one indirect IRA-to-IRA rollover within a 12-month period, any subsequent rollovers are generally treated as excess contributions to the IRA. The amount involved in the second (and any subsequent) indirect rollover will be considered a taxable distribution from the original IRA.

This means the distributed amount will be subject to ordinary income tax. Additionally, if the individual is under age 59½, the distribution may also incur a 10% early withdrawal penalty. Beyond these immediate taxes and penalties, an excess contribution is subject to a 6% excise tax each year it remains in the IRA. Correcting such an error often requires withdrawing the excess contributions, and it is advisable to consult a tax professional for guidance.