Avoiding The One IRA Rollover Per Year Problem

In case you’re not aware of it, there is a strict rule that the IRS applies with regard to IRA rollovers:  you are allowed to roll funds over from an IRA using the 60-day rule only once during each 12-month period.  FYI: Trustee-to-trustee transfers are not considered rollovers for this rule.

Here’s an example of what could happen:  Early in the year, you withdraw some money from your IRA to help you catch up on some bills.  Then, you receive a bonus a little later in the year, within the 60-day period from your withdrawal, so you deposit those funds back into the same IRA.

Then, later in the year, you want to take another short-term distribution from your IRA, and once again you have the opportunity to put the funds back into the first IRA… but now you’re stuck.  You can’t roll the distribution back into the original IRA, since you’re still within the 12-month period, and it won’t be up until after your 60 days is past.  And you can’t roll it into another IRA either, since the rule applies to the IRA from whence you rolled out.

Here’s what you can do

You have two main choices in a situation such as the one above:

1) Rollover the IRA money into a qualified plan, such as a 401(k) or 403(b).  Not all of these plans allow “roll-ins” but many are beginning to allow them.  The 12-month rule doesn’t apply to rollovers from an IRA to other types of plans.

2) Convert the funds to a Roth IRA.  Even though you’ll have to pay tax on the conversion, this can be a valid move as well.  The 12-month rule also doesn’t apply to conversions.  Plus (and here’s the sneaky part) if you wanted to recharacterize the Roth conversion, you could place the converted funds back in the original IRA, even if it was still within the 12-month period.  This is due to the fact that a recharacterization is NOT considered a rollover for the purpose of the one-rollover-per-12-month rule.

About the author

Jim Blankenship, CFP®, EA

Jim Blankenship is the founder and principal of Blankenship Financial Planning, Ltd., a financial planning firm providing hourly, as-needed financial planning and advice. A financial services professional for over 25 years, Jim is a CFP professional and has earned the Enrolled Agent designation, a designation that qualifies him as enrolled to practice before the IRS. Jim is also a NAPFA-registered financial advisor, which designates him as a Fee-Only Financial Advisor.

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  • [...] Avoiding The One IRA Rollover Per Year Problem | FiGuideIn case you’re not aware of it, there is a strict rule that the IRS applies with regard to IRA rollovers: you are allowed to roll funds over from an IRA using the 60-day rule only once during each 12 funds and deposit them in my personal checking account, can I re-invest in a new IRA Annuity … View Video [...]

  • Stewart,

    I believe you will have to put them into separate IRA’s since the rule is that you can’t do a 60-day rollover of funds into or out of the same IRA within 12 months.

    That’s the way I interpret the rules, anyhow.

    jb

  • I have multiple IRA Annuitis with different account numbers with the same insurance company. If I cash all of them in and take posession of the funds and deposit them in my personal checking account, can I re-invest in a new IRA Annuity within 60 days from the date of each check?

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