How Often Can You Roll Over an IRA?

An Individual Retirement Account (IRA) rollover involves moving funds from one retirement account to another. Understanding the rules governing these transfers is important to avoid unintended tax consequences. This article explains the regulations surrounding IRA rollovers and their frequency.

Understanding IRA Rollovers

IRA rollovers occur in two distinct ways, and understanding the difference is important for compliance. A direct rollover, often called a trustee-to-trustee transfer, involves funds moving directly between financial institutions. The account holder never takes physical possession of the money. The transfer is typically executed electronically or via check made payable to the new institution.

Conversely, an indirect rollover, also known as a 60-day rollover, involves the account holder receiving the distribution directly. The individual then has 60 days from the date of receipt to deposit the funds into another eligible retirement account. This type of rollover is specifically governed by frequency limitations established by the Internal Revenue Service (IRS). Failing to complete the re-deposit within the 60-day window can result in the distribution being considered taxable income.

The One-Rollover-Per-Year Rule

The IRS imposes a “one-rollover-per-year” rule specifically on indirect IRA rollovers. This regulation permits an individual to perform only one indirect (60-day) rollover from any of their IRAs to any other IRA within a 12-month period. This rule applies to the individual, meaning a completed indirect rollover from one IRA affects all other IRAs held by that individual for the subsequent 12 months.

The 12-month period for this rule begins on the date the distribution is received by the individual, not on a calendar year basis. For example, if an indirect rollover distribution is received on March 15, 2025, the individual cannot perform another indirect IRA rollover from any of their IRAs until March 16, 2026. This timeframe ensures that the restriction is consistently applied regardless of when the tax year begins or ends.

This rule is designed to prevent individuals from using their IRA accounts as short-term checking accounts by repeatedly withdrawing and redepositing funds. The intent of retirement accounts is long-term savings, and the rollover rules support this purpose.

Transactions Not Subject to the Rule

Several common transactions involving retirement funds are not subject to the one-rollover-per-year limit. Direct trustee-to-trustee transfers do not count towards this limit because the funds never pass through the account holder’s hands. These transfers can be performed as often as needed.

Rollovers from employer-sponsored retirement plans, such as 401(k)s or 403(b)s, into an IRA are also exempt from the IRA one-rollover-per-year rule. These transfers are considered a different type of transaction, often referred to as a “plan-to-IRA” rollover, and are not restricted by the same frequency limitations as IRA-to-IRA indirect rollovers.

Additionally, converting a traditional IRA to a Roth IRA, commonly known as a Roth conversion, is not considered a rollover for this frequency rule. A Roth conversion is a taxable event where pre-tax traditional IRA funds become after-tax Roth IRA funds. It does not involve the same type of re-deposit as an indirect rollover. Individuals can perform Roth conversions as frequently as their financial strategy dictates without affecting their ability to perform an indirect IRA rollover.

Penalties for Exceeding the Limit

Exceeding the one-rollover-per-year rule for indirect IRA rollovers can lead to financial penalties and tax liabilities. If an individual performs a second indirect IRA rollover within the 12-month period, the second distribution will no longer qualify as a tax-free rollover. Instead, these distributions will be considered fully taxable income for the year they are received.

Beyond being taxed as ordinary income, if the individual is under age 59½ at the time of the distribution, an additional 10% early withdrawal penalty will apply to the taxable amount. This penalty is imposed unless an IRS exception applies, such as for qualified higher education expenses or unreimbursed medical expenses. The combination of income tax and the early withdrawal penalty can substantially reduce the amount of the original distribution.

These distributions are reported to the IRS by the financial institution on Form 1099-R. Individuals who incur an early withdrawal penalty are required to report it on Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, when filing their income tax return. If a violation occurs, consult a qualified tax professional to understand reporting requirements and explore potential corrective actions.