What Is the 60-Day Rollover Rule?

The IRS allows tax- and penalty-free rollovers from one tax-advantaged retirement plan or account to another, but only if you follow the 60-day rollover rule. The rule requires you to redeposit all your funds into a new individual retirement account (IRA), 401(k), or other qualifie🔯d retirement account within 60 days of the distribution.

If you 澳洲幸运5官方开奖结果体彩网:fail to meet the 60-day deadline, your retirement funds will be subject to income taxes. And, if you're under 59½, an early wiᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚthdrawal penalty will also be levied.

Direct vs. Indirect Rollovers

澳洲幸运5官方开奖结果体彩网:Most rollovers happen electronically with a 澳洲幸运5官方开奖结果体彩网:direct rollover. For example, say you’ve left your job and want to roll over your 401(k) account into a 澳洲幸运5官方开奖结果体彩网:traditional IRA. You can have your 401(k) plan administrator directly roll over the 401(k) money to the IRA you designate. You avoid taxes with this option.

With other direct rollovers, you receive a check made out in the name of the new 401(k) or the IRA account. You forward it to your new employer’s 401(k) plan administrator or the financial institution that has custody of your IRA. For most people, that option adds a step, though it’s sometimes necessary if the 澳洲幸运5官方开奖结果体彩网:plan administrator of your original plan can’t do a direct rollover. When you receive a check for a new account, taxes have not already been withheld.

With an 澳洲幸运5官方开奖结果体彩网:indirect rollover, you take control of the funds and roll over the money to a retirement account yourself. You can make an indirect rollover with all or some of the money in your account. The plan administrator or account custodian liquidates the assets. They either mail a check made out to you or 澳洲幸运5官方开奖结果体彩网:deposit the funds directly i🅷nto your personal bank/brokerage ac🏅count.

How the 60-Day Rollover Rule Works

The 60-day rollover rule primarily applies to indirect rollovers, which the IRS refers to as 60-day rollovers. You have 60 days from receiving an IRA or retirement plan distribution to roll it over or transfer it to another plan or IRA.

If you don’t roll over your funds, you may have to pay a 10% 澳洲幸运5官方开奖结果体彩网:early withdrawal penalty and income taxes on the withdrawal amount if you are under 59½. If the rollover is from a Roth IRA, you can 澳洲幸运5官方开奖结果体彩网:withdraw contributions at any time free of tax and penalty. However, earnings withdrawn from a Roth IRA are subject to the 60-day rule.

Many financial and tax advisors recommend direct rollovers because d🦄elays and mistakes are less likely. If the money goes straight to an account or a check is made out to the account (not you), you have deniability in claiming you never took a taxable distribution should the funds not be deposited before the deadline.

Using the 60-Day Rule

Why would you do an indirect rollover, given that it has a 60-day deadline? The answer may be that you need to use your funds during that time. The IRS rules say you have 60 days to deposit to another 401(k) or IRA—or to redeposit the money to the same account. This latter provision gives you the option to use money from your account and repay it within this time frame.

This strategy primarily applies to IRAs, as many—though not all—401(k) plans often allow you to borrow funds, 𒅌paying yourself back over time with interest. Either way, the 60-day ro🔯llover rule can be a convenient way to access money from a retirement account on a short-term basis.

You take 澳洲幸运5官方开奖结果体彩网:temporary control of yo🐈ur ret༺irement funds by having the administrator or custodian cut you a check. Then, do with it what you wish. As long as you redeposit the money within 60 days of receiving it, it will be treated like an indirect rollover.

Remember that you can treat the money as a loan, but technically, it is not a loan since the IRS prohibits loans from IRAs.

How Indirect Rollovers Are Taxed

When your 401(k) plan administra⛎tor or ♕your IRA custodian writes you a check, by law, they must automatically withhold a certain amount in taxes, usually 20% of the total. So you would get less than the amount that you were withdrawing.

You must make up the amount withheld—the funds you didn’t receive—when you redeposit the money to avoid paying taxes.

For example, if you take a $10,000 distribution from your IRA, your 澳洲幸运5官方开奖结果体彩网:custodian will withhold taxes—say, $2,000. If you deposit an $8,000 check within 60 days back into the IRA, you’ll owe taxes on the $2,000 withheld. If you make up the $2,000 from other sources of income and redeposit the entire $10,000, you won’t o🐲we taxes.

There are three tax-reporting scenarios for indirect rollovers. Continuing with the example of taking a $10,000 distribution that is taxed $2,000:

1. If you redeposit the entire amount you took out, including making up the $2,000 in taxes withheld, and you meet the 60-day limit, you can report the rollover as a nontaxable rollover.
2. If you redeposit the $8,000 you received, but not the $2,000 taxes withheld, you must report the $2,000 as 澳洲幸运5官方开奖结果体彩网:taxable income, the $8,000 as a nontaxable rollover, and the $2,000 as taxes paid, plus the 10% penalty.
3. If you fail to redeposit any of the money within 60 days, you should report the entire $10,000 as taxable income and $2,000 as taxes paid. If you’re under 59½, you’ll also report and pay the additional 10% penalty unless you qualify for an exception.

Retirement Security Rule: What It Is and What It M💙e𒁏ans for Investors

If you own an IRA, you are planning for your financial future. Now or in retirement, you might seek investment guidance from a financial advisor. If that occurs, you should know about the Retirement Security Rule. Also known as the fiduciary rule, the new regulation’s purpose is to protect investors from conflicts of interest when receiving 澳洲幸运5官方开奖结果体彩网:investment advice that the investor uses for retirement savings.

The rule was issued by the 澳洲幸运5官方开奖结果体彩网:U.S. Department of Labor (DOL) on April 23, 2024 and was to go into effect on September 23, 2024. However, due to court challenges, the effective date is uncertain for 2025.

If an advisor is acting as a fiduciary under the Employee Retirement Income Security Act (ERISA), they are subject to the higher standard–the fiduciary best-advice standard rather than ꦕthe lower, merely suitable advice standard. Their designation can limit products and services they are allowed to sell to clients who are saving for retirement.

The Bottom Line

澳洲幸运5官方开奖结果体彩网:Using a rollover to move money from one tax-advantaged retirement account to another can be tricky with an indirect rollover. Understanding the 60-day rollover rule requires you to redeposit all the withdrawn funds into a new IRA, 401(k), or another qualified retirement account within 60 days. If you miss the deadline, you will pay income taxes on the distribution 🃏and an early withdrawal penalty if you're under age 59½.

Also, remember that during any 12-month period, you’re allowed only one indirect IRA rollover. However, direct rollovers and trustee-to-trustee transfers between IRAs aren’t limitꦅed to one per 12 monthsꦜ, nor are rollovers from traditional to Roth IRAs.