The 60-Day Rollover and the 12-Month Rule

Moving funds between retirement accounts is a common financial strategy to consolidate assets or access different investment options. The 60-day rollover provision allows individuals to personally receive a distribution from a retirement account and deposit it into another within a 60-day window without tax implications. This method is governed by regulations from the Internal Revenue Service (IRS). A misunderstanding of these rules, particularly the one-rollover-per-year limit for Individual Retirement Arrangements (IRAs), can trigger tax penalties.

Understanding the One-Rollover-Per-Year Rule

The one-rollover-per-year rule permits an individual to make only one tax-free, 60-day rollover from one IRA to another within a 12-month period. This limitation is not based on a calendar year. Instead, it applies to a rolling 12-month period that begins on the date you receive the distribution from your first IRA. For example, if you take a distribution from an IRA on May 1, 2025, and complete a 60-day rollover, you are not eligible to make another similar rollover until after May 1, 2026.

A key feature of this regulation is the IRA aggregation rule. The rule applies to all of an individual’s IRAs combined, treating them as a single entity for this purpose. This means Traditional, Roth, SEP, and SIMPLE IRAs are all grouped together. Consequently, a 60-day rollover from one Traditional IRA to another precludes a separate 60-day rollover from a different Roth IRA to another Roth IRA within that same 12-month timeframe. The 12-month clock starts from the date of distribution receipt, not the date the funds are deposited into the new account.

Transactions Affected by the Rule

The one-rollover-per-year limitation exclusively targets indirect rollovers between IRAs, where an individual takes personal receipt of the funds before depositing them into another IRA within the 60-day timeframe. This applies to rollovers from a Traditional IRA to another Traditional IRA and from a Roth IRA to another Roth IRA.

Conversely, several transactions are not subject to the one-per-year limit. One exemption is for rollovers originating from an employer-sponsored retirement plan, such as a 401(k) or 403(b), to an IRA. An individual can perform multiple 60-day rollovers from a former employer’s plan into an IRA within a single year. Rollovers from an IRA back to an eligible employer-sponsored plan are also not counted toward the limit.

Another exempt transaction involves Roth conversions. When an individual moves funds from a Traditional, SEP, or SIMPLE IRA to a Roth IRA, this is classified as a conversion, not a rollover for the purposes of this rule. These conversions are not restricted by the one-per-year limitation, though income tax will be due on the converted amount.

Utilizing Trustee-to-Trustee Transfers

For individuals needing to move funds between IRAs more than once a year, the trustee-to-trustee transfer, also known as a direct rollover, is an option. This process is not considered a rollover by the IRS and is exempt from the one-rollover-per-year limitation. There is no limit on the number of direct transfers an individual can execute in a 12-month period.

In a trustee-to-trustee transfer, the funds move directly from one financial institution to another without the account holder taking control of the money. The check is made payable to the receiving IRA custodian for the benefit of the account owner, not to the individual directly.

To initiate this type of transfer, the account holder must contact the financial institution that will be receiving the funds. That institution will provide the necessary paperwork to authorize the transfer from the current IRA custodian. This process ensures the transaction is handled correctly between the institutions.

Tax Consequences of a Violation

Violating the one-rollover-per-year rule results in several tax consequences. When an individual executes a second IRA-to-IRA 60-day rollover within the 12-month period, the transaction is invalidated. The amount withdrawn from the IRA for this second rollover is treated as a taxable distribution. This means the entire pre-tax amount of the distribution must be included in the individual’s gross income for the year the withdrawal was made.

Beyond the income tax liability, if the account holder is under the age of 59 ½, the distribution is subject to an additional 10% early withdrawal penalty. The final consequence relates to the funds deposited into the second IRA. Because the rollover is deemed invalid, the IRS considers this deposit an excess contribution. Excess contributions are subject to a 6% excise tax for each year they remain in the account, and this tax is assessed annually until the excess amount and its earnings are withdrawn.