How Many Times Can You Transfer an IRA in a Year?

Individual Retirement Arrangements (IRAs) offer tax advantages for retirement savings. As financial circumstances change, individuals may need to move funds between these accounts. Understanding the specific rules governing these transfers is important. Improperly executed transfers can lead to taxable distributions and penalties, which can diminish retirement savings.

Types of IRA Transfers

There are two primary methods for moving funds between IRAs: the indirect rollover, often called a 60-day rollover, and the direct rollover, also known as a trustee-to-trustee transfer. Each method has distinct characteristics and implications for the account holder.

An indirect rollover involves the IRA owner receiving the funds directly from the distributing financial institution. Once received, the individual has a strict 60-day window to deposit these funds into another eligible IRA. If the funds are not redeposited within this 60-day period, the distribution becomes fully taxable as ordinary income. Additionally, if the account holder is under age 59½, the amount may be subject to a 10% early withdrawal penalty.

Conversely, a direct rollover, or trustee-to-trustee transfer, is a more streamlined process where funds move directly from one financial institution to another without the IRA owner ever taking physical possession. The distributing institution sends the funds directly to the receiving institution. This method is generally preferred due to its simplicity and the elimination of the 60-day deadline, which removes the risk of missing the rollover period and incurring taxes or penalties.

The One-Rollover-Per-Year Limit

A significant regulation governing indirect IRA rollovers is the “one-rollover-per-year” limit. This rule stipulates that an individual can perform only one indirect rollover from any of their IRAs to another IRA within a 12-month period. This limit applies across all of an individual’s IRAs, including Traditional, Roth, SEP, and SIMPLE IRAs, treating them as a single aggregated entity for this purpose.

If an individual violates this rule by performing a second indirect IRA-to-IRA rollover within 12 months, the subsequent rollover amount is treated as a taxable distribution. This means the funds become subject to ordinary income tax. Furthermore, if the account holder is under age 59½, the distribution may also incur a 10% early withdrawal penalty.

Only indirect IRA-to-IRA rollovers are subject to this one-rollover-per-year limit. Other types of transfers and rollovers do not count against this restriction.

Circumstances Not Subject to the Limit

Several common financial transactions involving retirement funds are not subject to the one-rollover-per-year limit that applies to indirect IRA-to-IRA rollovers. These distinctions are important for effectively managing retirement savings without triggering unintended tax events.

Direct trustee-to-trustee transfers involve funds moving directly between financial institutions. These transfers are not considered rollovers for the one-per-year rule and can be performed as often as needed without limitation. This method is generally recommended when moving IRA funds between custodians.

Rollovers from employer-sponsored retirement plans, such as a 401(k), 403(b), or 457(b), into an IRA are also exempt from the one-rollover-per-year rule. Whether these rollovers are direct or indirect, they do not affect an individual’s ability to perform an indirect IRA-to-IRA rollover. This exemption allows for flexibility when consolidating retirement accounts after changing employment.

Roth conversions, where funds are moved from a Traditional IRA to a Roth IRA, are not subject to the one-per-year rollover rule. An individual can perform multiple Roth conversions within a 12-month period, regardless of any indirect IRA rollovers they may have also completed. This allows for strategic tax planning without being constrained by the rollover frequency limit.

In certain hardship situations, the Internal Revenue Service (IRS) may waive the 60-day deadline for completing an indirect rollover. While the IRS cannot waive the one-rollover-per-year rule itself, it can grant relief for missing the 60-day period due to circumstances beyond an individual’s control, such as financial institution errors, natural disasters, or serious illness.

IRS Reporting Requirements

Financial institutions play a role in reporting distributions and contributions related to IRA rollovers to both the account holder and the IRS. This reporting helps ensure compliance with tax regulations.

For distributions from retirement accounts, including rollovers, financial institutions issue Form 1099-R. This form details the gross distribution amount and, if applicable, the taxable amount. Correct distribution codes on Form 1099-R are important for distinguishing between different types of distributions.

Conversely, contributions to an IRA, including rollover contributions, are reported on Form 5498, “IRA Contribution Information.” This form informs the IRS of the amount contributed to the IRA. It is important to note that Form 5498 is generally not issued until May of the following year, which is after the typical tax filing deadline.

Account holders are responsible for accurately reporting these transactions on their federal income tax returns, typically on Form 1040. Even if funds were directly rolled over and not personally handled, the IRS considers it a reportable event. Ensuring that the information reported on an individual’s tax return aligns with the Forms 1099-R and 5498 received from financial institutions helps avoid potential discrepancies and inquiries from the IRS.