60-Day Rollover Rule

The 60-day rollover rule states that indirect rollovers from a qualified retirement plan or IRA to another qualified retirement plan or IRA must take place within a 60-day window starting from the day funds were withdrawn from the source. Failure to comply with this rule has tax and penalty implications that you must be aware of.

Marguerita M. Cheng, Certified Financial Planner
  • Written By
    Marguerita M. Cheng, CFP®, CRPC®, RICP®

    Marguerita M. Cheng, CFP®, CRPC®, RICP®

    Chief Executive Officer of Blue Ocean Global Wealth

    Marguerita M. Cheng, CFP®, CRPC®, RICP®, is the chief executive officer at Blue Ocean Global Wealth. As a Certified Financial Planner Board of Standards Ambassador, Marguerita educates the public, policymakers and media about the benefits of competent and ethical financial planning. She is a past spokesperson for the AARP Financial Freedom campaign.

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  • Edited By
    Savannah Hanson
    Savannah Hanson, financial editor for Annuity.org

    Savannah Hanson

    Financial Editor

    Savannah Hanson is an accomplished writer, editor and content marketer. She joined Annuity.org as a financial editor in 2021 and uses her passion for educating readers on complex topics to guide visitors toward the path of financial literacy.

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  • Updated: August 24, 2022
  • This page features 2 Cited Research Articles
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APA Cheng, M. M. (2022, August 24). 60-Day Rollover Rule. Annuity.org. Retrieved October 3, 2022, from https://www.annuity.org/retirement/60-day-rollover-rule/

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For various reasons, such as when switching employers, you might desire to rollover your existing qualified retirement plan (QRP) into another qualified retirement plan or an individual retirement account (IRA) or rollover your existing IRA into another IRA or a QRP.

The IRS permits such rollovers, but insists that they must take place within 60 days. This rule is formally known as the 60-day rollover rule. Complying with the rule can help you avoid paying taxes and penalties.

Direct vs. Indirect Retirement Rollovers

At its most simple, a retirement rollover is the transfer of funds (contributions and earnings) from one QRP or IRA to another QRP or IRA.

In retirement planning, rollovers might happen for various reasons. A common reason is the change of employer. When an employee changes jobs, they can rollover their 401(k) with a previous employer to the new employer. If the employee is moving from employment to self-employment (or anything in between), they might rollover from a 401(k) to an IRA.

Rollovers can also happen for various financial reasons such as moving from a traditional IRA to a Roth IRA to take advantage of tax-free and penalty-free withdrawals after age 59 1/2.

There are two common types of rollovers:
Direct Rollover
A direct rollover can occur in two ways. First, it can happen when the administrator/custodian of a QRP or an IRA transfers the funds in the QRP or IRA to another QRP or IRA without liquidating the underlying assets. Also called trustee-to-trustee transfer, this is a direct transfer with no taxes or penalties incurred.

A direct rollover can also happen if the administrator or custodian of a QRP or IRA liquidates the underlying assets, but writes a check in the name of the new plan or IRA rather than the beneficiary. Since the beneficiary does not have constructive receipt of the funds, this arrangement also qualifies as a direct rollover. Consequently, there are no taxes or penalties incurred.

Although direct rollovers are free from taxes or penalties, it is best practice to complete them within the 60-day window.
Indirect Rollovers
An indirect rollover occurs when the administrator or custodian of a QRP or IRA liquidates the underlying assets and writes a check in the name of the beneficiary rather than the new plan or IRA.

Failure to complete an indirect rollover within 60 days can lead to taxes or penalties.

How Does the 60-Day Rollover Rule Work?

The 60-day rollover rule specifically targets indirect rollovers. If you miss the 60-day rollover window, taxes will apply and penalties may apply.

When the rollover exceeds the 60-day window, the IRS considers it a distribution. This is an important distinction because distributions from a QRP and a traditional IRA are taxable.

If such distributions are not qualified distributions, the plan or account holder will pay an additional 10% penalty. Therefore, QRP or IRA holders who want to avoid taxes and penalties must complete their indirect rollovers within 60 days.

Can You Use Rollover Funds as a Loan?

The IRS allows you to redeposit the funds you have withdrawn back into the source QRP or IRA within the 60-day window. This means, should you no longer wish to rollover the funds into a new QRP or IRA, you can put it back where you withdrew it from to avoid taxes and penalties.

Many account holders use this opportunity to loan themselves money from their QRP or IRA. Because of the option to redeposit funds, you can withdraw funds from your QRP or IRA, use them in the short term and then replace the amount you have withdrawn before the 60-day window lapses and the IRS treats the withdrawal as a distribution.

In this way, the 60-day rollover rule provides an opportunity to take a short-term, zero-interest “loan” from your QRP or IRA.

The 60-Day Rollover Rule and Taxes

In retirement planning, taxes are always front and center in any consideration. The same is true with the 60-day rollover rule. There are two points to make here:

As explained above, if an indirect rollover does not occur within 60 days, the IRS treats it as a distribution. With QRPs and traditional IRAs, distributions are taxed at regular income tax rates.

The only exception exists with a Roth IRA. A 60-day rollover Roth IRA is free from taxes because the funds deposited into a Roth IRA are already post-tax funds. However, though Roth IRA withdrawals will be free from taxes, they are not free from penalties if the distribution is not a qualified distribution.

This point is especially important if you are using rollover funds as a loan. You may decide to redeposit the whole pre-tax amount, the post-tax amount or nothing.

Three tax reporting situations can occur:
Redeposit the Pre-Tax Amount
In this case, you will record the post-tax portion as a non-taxable rollover and the tax portion as tax paid.
Redeposit the Tost-Tax Amount
In this case, you will record the post-tax portion paid as a non-taxable rollover and the tax portion as both tax paid and taxable income. Failure to return the tax portion means the IRS will treat it as a distribution and charge taxes on it in addition to the tax already withdrawn.
No Redeposit
In this case, the entire amount will be recorded as taxable income and the tax portion as tax paid.

There are also parts of the 60-day rollover rules that allow you to request a ‌ waiver should you fail to rollover or redeposit within 60 days.

According to IRS rules, there are three ways to get a waiver:
Automatic Waiver
If you follow all the rules and send in a request for rollover within the 60-day window but the financial institution fails to complete it or makes an error, then you qualify for an automatic waiver from taxes and penalties that would have applied.
Request and Receive a Private Letter Ruling
If you believe you qualify for a waiver that has not been automatically granted, you can seek a private letter ruling granting such a waiver. However, there is a $10,000 user fee involved.
Self-Certify That You Qualify
You can fill out the modal letter and send it to the financial institution in question if you believe you qualify for a waiver. The IRS will audit your income tax return to determine if you indeed qualify. There are no fees involved with self-certification.

60-Day Rollover Example

To better understand the 60-day rule, consider a comprehensive example showing how the rule applies.

Suppose Cameron has a 401(k) and wants to rollover the funds ($50,000) into a new traditional IRA. If the administrator of the 401(k) does a direct transfer to a traditional IRA, that’s a trustee-to-trustee transfer and no taxes or penalties can apply.

If Cameron requests liquidation of assets and the check is written in the name of the traditional IRA, there are no taxes or penalties.

Suppose, however, that the check is written in Cameron’s name. In this case, if Cameron does not conclude the rollover within 60 days, he will incur taxes and, if the distribution is not qualified, penalties.

If Cameron changes their mind before the 60-day window lapses, they can redeposit the funds into the 401(k) without incurring taxes or penalties — provided they completed the process within the allotted time.

The only rollover exception to the above applies if the source account is a Roth IRA. In this case, Cameron won’t pay taxes (but can pay a penalty if the distribution is not a qualified one) even if the rollover does not take place within 60 days.

You can also rollover from an IRA or 401(k) to an annuity (fixed or variable). The same rules apply as the above; a rollover from a traditional IRA or QRP to an annuity is the same as a rollover from a traditional IRA or QRP to a QRP or IRA. Similarly, a rollover from a Roth IRA to an annuity is the same as a rollover from a Roth IRA to any QRP or IRA.

IRAs and the One-Rollover-Per-Year Rule

One of the essential 60-day rollover rules is called the one-rollover-per-year rule. What this means is that you can only make one rollover within a 12-month period. However, this rule has many exceptions.

The following rollovers don’t count towards the one-rollover-per-year rule:
  • Trustee-to-trustee rollover
  • Traditional IRA to Roth IRA conversion
  • Rollover from or to a QRP

The bottom line is that while there can be good motivations behind rollovers, there must be a due consideration of the 60-day rollover rule and how nonadherence can lead to taxes and penalties.

Before making any form of retirement rollover, speak to your financial advisor who is in the best position to advise you on what you should or should not do.

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: August 24, 2022

2 Cited Research Articles

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  1. U.S. Internal Revenue Service. (2022, April 29). Retirement Plans FAQs relating to Waivers of the 60-Day Rollover Requirement. Retrieved from https://www.irs.gov/retirement-plans/retirement-plans-faqs-relating-to-waivers-of-the-60-day-rollover-requirement
  2. U.S. Internal Revenue Service. (2022, June 16). Rollovers of Retirement Plan and IRA Distributions. Retrieved from https://www.irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira-distributions