How Many Times Can You Rollover an IRA?

An Individual Retirement Arrangement (IRA) rollover offers a method for moving retirement savings between accounts while preserving their tax-advantaged status. This process is commonly utilized when individuals change jobs, seek to consolidate multiple retirement accounts, or desire different investment options for their savings. Properly executing an IRA rollover can ensure that funds continue to grow tax-deferred or tax-free, depending on the IRA type. Understanding the specific rules governing these transactions is important to avoid unintended tax consequences.

What an IRA Rollover Involves

Moving funds between retirement accounts can occur through different mechanisms, primarily categorized as indirect rollovers and direct rollovers. An indirect rollover, also known as a 60-day rollover, involves the retirement funds being distributed directly to the account holder. Once received, the individual has 60 days to redeposit the full amount into another eligible retirement account, such as a different IRA or an employer-sponsored plan, to avoid taxation and potential penalties. If the funds originate from an employer-sponsored plan, a mandatory 20% federal income tax withholding may apply to the distribution, meaning the individual would need to use other funds to roll over the full amount.

In contrast, a direct rollover, often referred to as a trustee-to-trustee transfer, involves the funds moving directly from one financial institution to another without the account holder ever taking physical possession. This method is generally preferred due to its simplicity and the absence of tax withholding, as the funds are not considered a distribution to the individual. For example, a direct rollover typically occurs when an employer’s plan administrator sends the funds directly to the new IRA custodian. The fundamental difference lies in who receives the funds initially: the account holder in an indirect rollover, or the new financial institution in a direct transfer.

The Annual Rollover Limit

A specific Internal Revenue Service (IRS) rule limits the frequency of certain IRA rollovers. The “one-rollover-per-year” rule, outlined in IRS Publication 590-A, applies exclusively to indirect rollovers between IRAs. This means if an individual receives a distribution from one IRA and redeposits it into another IRA within 60 days, they cannot perform another such indirect rollover from any of their IRAs for a 12-month period. The limit applies to the individual taxpayer, regardless of how many IRAs they own, treating all of an individual’s IRAs (including traditional, Roth, SEP, and SIMPLE IRAs) as one for this purpose.

The 12-month period begins on the date the individual receives the distribution from the first indirect rollover. For example, if an indirect IRA-to-IRA rollover occurs on January 15th, 2025, no other indirect IRA-to-IRA rollover can be completed by that individual until January 16th, 2026. The IRS reinforced that the one-per-year limit applies on an aggregate basis to all IRAs owned by an individual.

Transactions Exempt from the Limit

Many common retirement account movements are not subject to the one-rollover-per-year limit, allowing for greater flexibility. Direct trustee-to-trustee transfers are exempt, as the funds never pass through the account holder’s hands. These transfers can occur as often as needed between IRAs, and they are not reported to the IRS for this limitation.

Rollovers from employer-sponsored retirement plans, such as 401(k)s, 403(b)s, and 457(b)s, into an IRA are also not subject to the one-rollover-per-year rule. Similarly, if an employer plan accepts them, rollovers from an IRA back into an employer-sponsored plan are not counted towards the annual limit.

Roth conversions, which involve moving funds from a traditional IRA or other pre-tax retirement account to a Roth IRA, are exempt from the one-rollover-per-year rule whether done directly or indirectly. Additionally, moving funds between different employer-sponsored plans, such as a 401(k) to another 401(k), is not subject to the IRA rollover frequency rule.

Implications of Exceeding the Limit

Violating the one-rollover-per-year rule for indirect IRA-to-IRA rollovers can lead to significant tax consequences. If a second indirect IRA-to-IRA rollover occurs within the 12-month period, the amount of that second rollover is considered a taxable distribution. This means the entire amount rolled over will be included in the individual’s gross income for that tax year.

In addition to becoming taxable, the distribution may also be subject to an early withdrawal penalty. If the individual is under age 59½ at the time of the distribution, a 10% additional tax typically applies to the taxable portion, unless a specific exception is met. Furthermore, the amount of the failed rollover may be treated as an excess contribution to the IRA.

An excess contribution is subject to a 6% excise tax each year it remains in the account. This annual penalty continues until the excess amount is corrected. Corrective actions, such as removing the excess contribution and any associated earnings by the tax filing deadline (including extensions), may be possible to mitigate these penalties, but often necessitate professional tax advice.