What Are the 60-Day IRA Withdrawal Rules?

The 60-day IRA withdrawal rule is a tax code provision that allows individuals to move funds between retirement accounts through an indirect rollover. This process lets a person take a distribution from an IRA or other qualified plan and redeposit it into another eligible account without immediate taxes or penalties, provided the entire transaction is completed within a 60-day timeframe.

The 60-Day Rollover Rule Explained

An indirect rollover begins when you request a distribution and your financial institution issues the funds directly to you. A 60-calendar-day countdown starts on the date you receive the funds. To maintain the tax-deferred status of the money, you must deposit the full amount into another eligible retirement account, such as another IRA, before the 60th day. If this deadline is met, the transaction is not considered a taxable event.

This process is different from a direct rollover, or trustee-to-trustee transfer, where funds move electronically between institutions without the account holder taking possession. A direct rollover bypasses the 60-day deadline and avoids potential tax withholding complications, making it a more secure option.

When you receive a distribution from a workplace retirement plan like a 401(k), the plan administrator is required to withhold 20% for federal income taxes. If you intend to complete a 60-day rollover, you are responsible for depositing the full, pre-tax amount into the new account. This means you must use personal funds to make up for the 20% that was withheld to avoid having that portion treated as a taxable distribution.

Key Limitations and Requirements

A restriction on indirect rollovers is the “once-per-year rule,” which states you can only make one IRA-to-IRA rollover within any 12-month period. This limitation applies to all of your IRAs collectively, as the IRS treats them as a single entity for this purpose. If you complete a 60-day rollover from one IRA to another, you cannot make another 60-day rollover from any of your IRAs for the next 365 days.

This once-per-year limitation does not apply to all retirement fund movements. Trustee-to-trustee transfers are not subject to this rule, allowing for unlimited direct transfers between IRAs. Converting a Traditional IRA to a Roth IRA is not considered a rollover for this rule’s purpose. The rule also does not restrict rollovers from an employer-sponsored plan, like a 401(k), into an IRA.

Certain distributions are ineligible for a 60-day rollover. You cannot roll over a Required Minimum Distribution (RMD), which is the amount you must withdraw annually starting at age 73. Distributions of excess contributions and their earnings also cannot be rolled over into another retirement account.

Consequences of Missing the Deadline

Failing to deposit withdrawn funds into an eligible retirement account within the 60-day window has immediate tax consequences. The entire distribution becomes taxable as ordinary income for the year you received the funds, which can increase your tax liability and potentially push you into a higher tax bracket.

Beyond income tax, a failed rollover can trigger an additional penalty. If you are under age 59 ½ when you take the distribution, the IRS imposes a 10% early withdrawal penalty on the taxable amount. This penalty is applied on top of the ordinary income tax.

Seeking a Waiver for a Missed Deadline

If you miss the 60-day deadline, you may be able to get an extension by seeking a waiver from the IRS. One method is self-certification, which does not require advance IRS approval if your failure to meet the deadline was due to one of several specific reasons, including:

• Errors by the financial institution
• A misplaced and uncashed distribution check
• Severe illness affecting you or a family member
• Postal errors

To use self-certification, you must write a letter to the receiving financial institution. In this letter, you must state that the failure was due to an accepted reason and that the funds were deposited as soon as practicable after the reason for the delay was resolved. The institution can then accept the funds as a valid rollover, though the certification is subject to IRS review during an audit.

For situations not covered by self-certification, the other option is to request a Private Letter Ruling (PLR) from the IRS. This is a formal and expensive process that involves submitting a detailed request and paying a user fee of several thousand dollars. Obtaining a PLR requires the assistance of a tax professional due to its complexity.