Daily Archives: September 9, 2015

Rollover of Retirement Plan and IRA Distributions – 60 day rule

by Jessica DuPree

When taking early distribution from a retirement plan or IRA, it is important to remember the 60 day rule for the distribution to be considered “rolled over”.  To rollover a retirement plan means depositing the amount distributed from one retirement plan and placing these funds into another retirement plan or IRA.

Why roll over?jessica's blog

When you roll over a retirement plan distribution, you generally don’t pay tax on it until you withdraw it from the new plan. By rolling over, you’re saving for your future and your money continues to grow tax-deferred.

If you don’t roll over your early distributions, then this income is taxable (other than qualified Roth distributions and any amounts already taxed) and will also be subject to additional tax unless you’re 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?

  1. Direct rollover – If you’re getting a distribution from a retirement plan, you can ask your plan administrator to make the payment directly to another retirement plan or to an IRA. Contact your plan administrator for instructions. The administrator may issue your distribution in the form of a check made payable to your new account. No taxes will be withheld from your transfer amount.
  1. Trustee-to-trustee transfer – If you’re getting a distribution from an IRA, you can ask the financial institution holding your IRA to make the payment directly from your IRA to another IRA or to a retirement plan. No taxes will be withheld from your transfer amount.
  2. 60-day rollover – If a distribution from an IRA or a retirement plan is paid directly to you, you can deposit all or a portion of it in an IRA or a retirement plan within 60 days. Taxes will be withheld from a distribution from a retirement plan, so you’ll have to use other funds 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 after 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 Langdon & Company LLP for more information about retirement plans and other ways to be prepared for retirement.

Jessica ([email protected]) is an intern in our tax practice.  She works on various projects from individuals to corporate clients.