3713.06 / What should individuals understand about the “once per year” IRA rollover rule?

Taxpayers can complete nontaxable rollovers between IRAs as long as the funds from the first IRA are deposited into the second IRA within 60 days. However, the taxpayer can only do this once in any 12-month period. If the taxpayer makes a second rollover within 12 months of the first rollover, the entire amount that was intended for rollover will be deemed distributed in a fully taxable transaction.

If the taxpayer was not eligible to withdraw funds from the IRA because he or she had not reached age 59 ½, the taxpayer can also be subject to the 10 percent early withdrawal penalty on top of his or her ordinary income tax rates. The rollover can also trigger the 6 percent tax on excess IRA contributions if the mistake is not corrected on time.

The rule applies to all IRAs—including traditional IRAs and Roth IRAs. It does not apply to rollovers between IRAs and employer-sponsored 401(k) plans. The rule also applies to all types of IRAs, so if the taxpayer has a SEP IRA, SIMPLE IRA or Roth IRA, the taxpayer is limited to one rollover per year across all types of accounts (Roth conversions do not count as rollovers).