Tax Insights

Your Guide to State, Local, Federal, Estate + International Taxation

Don’t get trapped with the IRA 60 day rollover rule

60 day rollover rule, IRA, taxDeadlines can be very stressful, especially when it comes to taxes. One stress that many people are not aware of is the 60-day deadline for keeping an IRA rollover tax-free. Why you may ask? Because missing the 60 day rollover rule can result in taxable income — and if you’re under age 59½, you may have to pay a 10% penalty as well.

The best way to avoid this stress is to ask your IRA trustee to make a direct transfer of your funds from one account to another. This option is considered a direct rollover and is not taxed, as the money was not actually received. Circumstances may change, though, if you have a short-term need for cash and you receive a distribution in the form of a check. In that case, the clock begins to tick on your withdrawal, commonly known as an indirect rollover. You have 60 days to redeposit the withdrawal into the same account or a new similar account. Otherwise you may have to include it as income on your tax return.

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Not all withdrawals are eligible for rollover. For instance, after age 70½, you’re required to take minimum distributions from your traditional IRA — and those cannot be re-deposited into your account.

Two other restrictions to keep in mind

First, you can generally take advantage of the 60-day rule only once per year. Note that the “waiting period” applies separately to each of your IRAs. This one-per year limit does not apply to:

  • Rollovers from traditional IRAs to Roth IRAs (conversions)
  • Trustee-to-trustee transfers to another IRA
  • IRA-to-plan rollovers
  • Plan-to-IRA rollovers
  • Plan-to-Plan rollovers

Second, you have to roll over the same property. That means if you receive cash, you need to put cash back in to qualify for tax-free treatment.

While the IRS rules may seem strict, there is some relief available. The best planning tip is to contact your Henry+Horne tax advisor before making a withdrawal to ensure the proper handling.

Danette Holguin, EA