The 60 Day Rollover: Caution - HANDLE WITH CARE!

| September 11, 2015

Don’t you appreciate it when there’s danger ahead and someone warns you? Well we’re going to sound the alarm on indirect, or 60 day, rollovers and the new rule that went into effect at the beginning of this year.

The gist of the rule is now you can only do one 60 day rollover per year. What’s so bad about that you say? Well let’s take a closer look.

We’ll start with a quick refresher on IRA rollovers; to move an IRA from one financial firm to another, you do this in the form of a rollover. There’s two main types:

  • A direct rollover (sometimes called a trustee to trustee transfer).
  • The second type is a 60 day rollover (sometimes called an indirect rollover).

Of these two rollovers, the trustee to trustee transfer is the neatest and cleanest when it comes to taxes and reporting. This is because the transfer is done directly from one firm to another without YOU taking receipt of the money.

Conversely, the 60 day rollover, or indirect rollover, is where you DO take receipt of the money and you have a maximum of 60 days to put it back into an IRA without taxes or penalties.  

Now remember, under the new rule is you are allowed to do one 60 day rollover per year, no matter how many IRAs you have. One, that’s it.

How does this differ from the previous rules?

In the past if you wanted to move your IRA to another institution, you could go to your IRA custodian, ask for a check for the balance of your IRA, and as long as you deposited this check back into an IRA within 60 days, you had no taxes or penalties – that’s a 60 day rollover.

You could do this once every 12 months for each and every IRA you have.

The way the rule sits now, you’re only allowed to do one 60 day rollover within 12 months, no matter how many IRAs you have. So let’s give you an illustration:

Say you have 10 IRAs at various banks and brokerage firms.

Under the old rules you could do up to ten 60 day rollovers in one 12 month period. One for each IRA.

Under the new way, if you have the same 10 IRAs, you can only do one 60 day rollover in a 12 month period, not 10. Do you see the difference?

What if you want to move more than one IRA in a year?

The most important thing I can tell people: FORGET 60 day rollovers from now on! They’re now a booby trap! Instead, use the trustee to trustee transfer method. You can do as many trustee to trustee transfers as you want in a year, there’s no limit. The trustee to trustee is the cleanest and lowest risk type of transfer there is. These indirect 60 day rollovers are too risky now because it’s too hard to keep track of these on a 12 month rolling calendar.

If you forget you rolled one already and do another within the same twelve months - you’ll be in violation. There’s no remedy or fix for this either – that means you’ll pay the tax on the entire IRA in violation. Hopefully it’s not a big IRA! To make matters worse, the mistake may not be discovered for years and there could be interest and penalties for the years the excess contribution was not removed. Everything is reported electronically now to the IRS, so don’t count on them missing something like this! We say it all the time, it’s easier to avoid a mistake than it is to solve one!

Don’t let this happen to you, if you would like more information on this subject, feel free to contact us at 815-455-6453. 

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.