Why IRA-to-IRA Rollovers Are Limited

We often receive questions about the difference between an IRA-to-IRA rollover and a direct custodian-to-custodian transfer, and why the IRS places limits on the rollovers. Below is a quick explanation to help you make informed decisions and avoid unintended tax consequences. ‍

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Why IRA-to-IRA Rollovers Are Limited to Once Every 12 Months

An IRA-to-IRA rollover occurs when funds are distributed from an IRA, and you then redeposit those funds into another IRA. The IRS limits this type of rollover to one per 12-month period, regardless of how many IRAs you own. Your custodian is required to report all distributions to the IRS, and you will also have corresponding tax reporting requirements to document that the funds were properly deposited into a new IRA.  

This rule exists to prevent individuals from repeatedly taking temporary possession of retirement funds, which could otherwise be used as short-term loans. If more than one rollover is completed within a 12-month period, the excess transaction is treated as a taxable distribution and may also be subject to early-distribution penalties and potential excess contribution issues.

In addition, rollover funds must be redeposited within 60 calendar days, with the countdown beginning on the date the funds or assets are received. If this deadline is missed, even by one day, the distribution may be treated as a taxable withdrawal. ‍

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Why Transfers Are Preferred

A direct transfer moves funds directly from one IRA custodian to another, without the money ever passing through your hands. Because the account owner does not, and cannot, take possession of the funds, the IRS does not consider this a rollover.

Direct transfers are generally preferred because they:

• Are not limited to once per 12-month period
• Are not subject to the 60-day rule
• Avoid accidental taxable events
• Reduce the risk of IRS penalties or reporting issues
• Provide a smoother, more secure movement of retirement assets
• Require no tax reporting to the IRS

For these reasons, direct custodian-to-custodian transfers are typically the safest and most efficient way to move IRA assets. ‍

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In Summary

While IRA-to-IRA rollovers are allowed, they come with strict IRS limitations and timing requirements. Whenever possible, a direct custodian-to-custodian transfer is the recommended method for moving retirement funds in order to stay compliant and minimize risk.

As always, we encourage you to consult with your tax or financial professional regarding your specific situation. If you have questions about how to move your IRA assets or which method is best for you, we’re happy to help explain your options.

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