60-Day Rollover Rules

60 day rollovers and an important rule.

Rule to know – IRA owners are limited to one 60-day rollover between IRAs per 12 months on an account by account basis. If they violate this rule their distribution will be taxable.

When performing a transfer from IRA to IRA, there is no distribution that takes place. There is also no limitation on the amount of times you can do this.

The question was, if a client receives a direct rollover from their 401k (QRP) to an IRA, then takes the money from the IRA, can they redeposit that money?

A direct rollover is a distribution for reporting purposes that goes directly to a receiving custodian. No 60-day rollover is actually performed. More importantly, it was not a distribution from an IRA that was redeposited into another IRA.

Sec. 408(d)(3)(b) limits only rollovers from an IRA into an IRA for the purpose of the 12 month rule. It does not prevent a tax-free rollover from QRP to IRA. This is important to understand.

If you have a Direct Rollover from a QRP to an IRA, then you take a distribution from the IRA , you should be able to redeposit those funds within 60-days as an “indirect rollover.”

Trustee-to-trustee transfers from IRA to IRA are not actual distributions, so you can perform as many of these in a year as you want. Because of this, you should never be stuck when moving your money even with IRAs. It is important to understand the rule because 60-day rollovers are performed very frequently.

It also important to understand the distinction between a qualified retirement plan like a 401k and an IRA and how the rules may differ. In this case, there is no violation of the 12 month rule.