3501 Tully Road Suite B • Modesto CA 95356
(209) 526-3091 • (209) 526-2287

04 Nov

60 Days - The Rule for Retirement Plan Rollovers

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Important for any rollover distribution is the 60-day rule. To rollover a retirement plan means depositing the amount distributed from one retirement plan and depositing those funds into another plan or IRA. If this is done within 60 days, the distribution will be considered rolled over.

Why roll over?

You generally will not have to pay tax on a rollover distribution until you withdraw the funds from the new plan. Therefore, you’re saving for your future and your money continues to grow tax-deferred. If an early distribution is not rolled over, it becomes taxable income (other than qualified Roth distributions and any amounts already taxed) and will also be subject to additional tax unless you are eligible for one of the exceptions to the 10% additional tax on early distributions. See IRS website for more information on exceptions for early distribution additional tax.

How do I complete a rollover?

Direct rollover – Your plan administrator can make the payment directly to another retirement plan or IRA if the distribution is from a retirement plan. Contact your administrator for instructions. The administrator may issue the distribution in the form of a check made payable to your new account. No taxes will be withheld from this amount.

Trustee-to-trustee transfer – If your distribution is from an IRA, the financial institution holding your IRA can make the payment directly to another IRA or retirement plan on your behalf. No taxes will be withheld from your transfer amount.

60-day rollover – If the distribution from an IRA or retirement plan is made directly to you, you can deposit all or a portion of this amount into the new account within 60 days. In this case, taxes will be withheld from the distribution so other fund would be necessary to roll over the full amount of the distribution.

When should I roll over?

You have 60 days from the date you received the distributions from the retirement plan or IRA to roll it over to another plan. It is up to the IRS to waive the 60 day roll over requirement based on the situation if it is a circumstance beyond the taxpayer’s control. This is decision is at the IRS’s will and should not be heavily relied on.

IRA one-rollover-per-year rule

Beginning January 1, 2015, you can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs you own.

The 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

Once this rule took effect, the tax consequences are:

  • You must include in gross income any previously untaxed amounts distributed from an IRA if you made an IRA-to-IRA rollover (other than a rollover from a traditional IRA to a Roth IRA) in the preceding 12 months, and
  • You may be subject to the 10% early withdrawal tax on the amount you include in gross income.

Is my retirement plan required to accept rollover contributions?

Your retirement plan is not required to accept rollover contributions. Check with your new plan administrator to find out if they are allowed and, if so, what type of contributions are accepted. You can roll your money into almost any type of retirement plan or IRA. Click this link to access the Rollover Chart located on the IRS website for more information.

Contact us for more information about retirement plans and other ways to be prepared for retirement.

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Clendenin Bird & Company, PC
3501 Tully Road Suite B • Modesto CA 95356
(209) 526-3091 • (209) 526-2287