IRA Rollover Rules: Deadlines, Withholding, and Roth Conversions

The rules for an IRA rollover come down to how the money moves. If it goes directly from one custodian to another, there is no tax, no withholding, and no annual limit on how often you can do it. If a check is cut to you personally, a 60-day clock starts, a once-per-12-months cap applies, and money coming out of an employer plan arrives with 20% already withheld. Getting this right is almost entirely about choosing the direct route and understanding the traps if you don’t.

Direct Transfer or Indirect Rollover

The IRS treats these as two very different transactions. A direct transfer (also called a trustee-to-trustee transfer) moves assets straight from one financial institution to another. You never touch the money, nothing is withheld, and the transfer doesn’t count against any rollover frequency limit.¹

An indirect rollover (sometimes called a 60-day rollover) is the risky version. The custodian sends the funds to you, and you have 60 days to redeposit the full amount into another qualified retirement account. Miss the deadline or deposit less than the full amount and whatever isn’t rolled over becomes a taxable distribution, with the 10% early withdrawal penalty layered on top if you’re under 59½.²

For nearly every situation, the direct route is the right one. The rest of this article is mostly about what happens when you can’t or don’t use it.

The 60-Day Deadline

The clock starts on the date you receive the distribution, not the date the check is mailed or the date you request it. Missing by a single day makes the entire amount a permanent withdrawal. You’ll owe ordinary income tax on the taxable portion, and the 10% early distribution penalty applies if you haven’t reached age 59½.²

The deadline is absolute with very narrow exceptions (see the self-certification section below). When the money is coming from an employer plan, the mandatory 20% withholding makes the timing even tighter because you have to replace the withheld amount from other savings to complete a full rollover.

The One-Rollover-Per-Year Rule

If you use the indirect method to move money between IRAs, you get one shot every 12 months. Only one indirect rollover from any of your IRAs is allowed within any 12-month period, and the window starts on the date you received the distribution, not the date you redeposited it.¹

The IRS aggregates all your IRAs for this rule. Traditional, SEP, SIMPLE, and Roth IRAs are treated as one pool. An indirect rollover from Traditional IRA A to Traditional IRA B in March means you cannot do another indirect rollover from any IRA (including a Roth) until the following March. A second attempt inside that window is a taxable distribution.

Two important carve-outs. The rule does not apply to trustee-to-trustee transfers, and it does not apply to rollovers from an employer-sponsored plan (like a 401(k)) into an IRA.³ Both are additional reasons to keep the money moving between institutions rather than through your account.

Rolling Employer Plan Money Into an IRA

When you leave a job or retire, moving a 401(k), 403(b), or similar plan into an IRA is one of the most common rollovers. Pre-tax contributions and their earnings roll into a traditional IRA to keep tax deferral, or into a Roth IRA if you want to convert and pay the tax now. After-tax contributions can go to either destination without triggering additional tax.

The 20% Withholding Trap

If an employer plan pays a distribution directly to you rather than sending it to your new IRA custodian, the plan administrator must withhold 20% of the taxable amount for federal income tax, even when you fully intend to complete the rollover. The withholding is not optional.²

The math works against you. Say your 401(k) balance is $100,000 and the plan sends a check. You receive $80,000; $20,000 goes to the IRS. To complete a full, tax-free rollover, you have to deposit $100,000 into the new IRA within 60 days, which means finding $20,000 from other savings to replace the withholding. You get that $20,000 back as a tax credit when you file, but you need the cash in the meantime.

Deposit only the $80,000 you actually received and the $20,000 shortfall is treated as a permanent taxable distribution, with the 10% early withdrawal penalty possible on top.

How To Skip the Withholding

Elect a direct rollover. Tell the plan administrator to send the funds directly to your new IRA custodian and provide the custodian’s name, your new account number, and routing instructions. Money that moves between institutions without landing in your bank account isn’t subject to the 20% rule.⁴ The plan administrator reports the transaction on Form 1099-R with distribution code G, which tells the IRS no tax is owed.

Splitting Pre-Tax and After-Tax Money

If your employer plan holds both pre-tax and after-tax contributions, IRS Notice 2014-54 lets you split the distribution across two destinations in a single transaction. Pre-tax money goes to a traditional IRA; after-tax money goes to a Roth IRA.⁵ The whole distribution is treated as one event for allocation purposes, which is what makes the clean split possible. If your plan has significant after-tax contributions, this is one of the more efficient ways to move money into a Roth without paying tax on dollars you’ve already been taxed on.

Roth Conversions

A Roth conversion moves money from a traditional IRA or employer plan into a Roth IRA. Unlike a same-type rollover, a conversion is a deliberate taxable event: the converted amount is included in your gross income for the year at ordinary rates.⁶ Qualified Roth withdrawals in retirement are tax-free, which is the tradeoff.

No income limit applies to who can convert, and no cap applies to the amount. The conversion itself doesn’t trigger the 10% early withdrawal penalty, but a separate five-year clock starts on January 1 of the year you convert. Withdraw the converted amount before that five-year period ends while under 59½ and the earnings portion may be subject to tax and the 10% penalty.

The Pro-Rata Rule

If you hold both deductible and nondeductible contributions across your traditional, SEP, and SIMPLE IRAs, you can’t pick which dollars to convert. The IRS treats all your non-Roth IRAs as one pool and prorates the conversion. The taxable share equals the ratio of your total pre-tax balance to your total IRA balance as of December 31 of the conversion year.⁷

Example: combined traditional IRAs of $200,000 with $40,000 of nondeductible contributions puts your after-tax share at 20%. Convert $50,000 and only $10,000 is tax-free; the remaining $40,000 is taxable income. You track and report this on Form 8606.⁸

Some people work around pro-rata by rolling the pre-tax IRA balance into an employer plan that accepts incoming rollovers, leaving only the after-tax basis in the IRA for a tax-free conversion. It works, but only if the employer plan permits such transfers.

Watch the Tax Bill

Financial institutions generally don’t withhold federal tax on a Roth conversion done as a trustee-to-trustee transfer. The bill arrives when you file, and it can be large. An $80,000 conversion in the 24% bracket adds roughly $19,200 in federal tax. Without an adjustment to estimated payments or withholding during the year, you could owe an underpayment penalty on top of the conversion tax.

If You Miss the 60-Day Deadline

A missed deadline isn’t always fatal. Under Revenue Procedure 2016-47, the IRS lets you self-certify a late rollover without a private letter ruling, provided the delay came from one of the approved reasons.⁹

Qualifying reasons include a financial institution error, a misplaced or uncashed distribution check, serious illness or death in the family, severe damage to your home, incarceration, and postal errors, among a few others. You submit a written certification to the IRA custodian or plan administrator using the IRS model letter or one substantially similar, and you have to complete the rollover within 30 days of the qualifying reason no longer preventing you from doing so.

Two limits. The IRS must not have previously denied a waiver for that specific distribution, and self-certification doesn’t fully insulate you: the IRS can still challenge your certification on audit. If your situation doesn’t fit one of the listed reasons, you can request a formal private letter ruling. The user fee is $10,000.¹⁰

The SIMPLE IRA Two-Year Rule

SIMPLE IRAs carry a restriction that catches people new to employer-sponsored retirement plans. During your first two years of participation in a SIMPLE IRA plan, funds can only be transferred to another SIMPLE IRA. Rolling SIMPLE IRA money into a traditional IRA, 401(k), or any non-SIMPLE account inside that window triggers a taxable distribution with a 25% early withdrawal penalty rather than the usual 10%.¹¹

Once the two years are up, SIMPLE IRA funds can be rolled into a traditional IRA or other eligible plan under the normal rules. The clock starts on the date of your first contribution to the SIMPLE IRA, so knowing that date matters.

Rollovers That Follow Different Rules

A few situations look like rollovers but sit outside the framework above. Retirement accounts divided in a divorce move tax-free under a Qualified Domestic Relations Order, and a spouse or former spouse receiving the funds can roll them into their own IRA. Inherited IRAs have their own regime: a surviving spouse can treat the account as their own, while non-spouse beneficiaries generally cannot roll an inherited IRA into their own IRA and must instead follow the applicable payout schedule. And starting in 2024 under SECURE 2.0, leftover 529 plan money can be rolled into the beneficiary’s Roth IRA, but only after the account has been open more than 15 years and subject to annual and lifetime caps. Each of these has enough moving parts to warrant its own research.

Reporting the Rollover

Even a perfectly executed tax-free rollover generates paperwork, and the IRS matches forms to make sure the money landed where it was supposed to.

Form 1099-R

The distributing plan or IRA custodian issues a 1099-R for the year of the distribution. Box 1 shows the gross amount; Box 2a shows the taxable amount. For a non-taxable rollover, Box 2a should be zero or blank. The distribution code in Box 7 tells the IRS what happened:

Code G: direct rollover from a qualified plan to an eligible retirement plan.
Code H: direct rollover of a designated Roth account to a Roth IRA.
Codes 2 or 7 with the IRA box checked: Roth conversion from a traditional IRA, with 2 for account holders under 59½ and 7 for those 59½ or older.¹²

An indirect 60-day rollover will still show the full distribution in Box 1. Reporting it correctly on your return is on you.

Form 5498

The receiving IRA custodian files Form 5498 with the IRS and sends you a copy. Box 2 reports rollover contributions received during the year; Box 3 reports Roth conversion amounts. The form isn’t due until June 1 of the following year, so it arrives well after the 1099-R.¹³ The IRS matches 5498 against 1099-R to confirm the distributed funds actually landed in a qualified account.

Form 1040

Rollovers appear on your return even when no tax is owed. Enter the gross distribution from 1099-R Box 1 on the pensions and annuities line, and the taxable amount on the adjacent line. For a fully non-taxable rollover, the taxable amount is zero and you write “Rollover” next to the entry. For a Roth conversion, the full converted amount goes on the taxable line and increases your adjusted gross income. If the conversion involved any after-tax basis, complete Form 8606 to calculate the non-taxable portion.⁸

1
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
2
Internal Revenue Service. Topic No. 413 – Rollovers from Retirement Plans
3
Office of the Law Revision Counsel. 26 U.S. Code 408 – Individual Retirement Accounts
4
eCFR. 26 CFR 1.402(c)-2 – Eligible Rollover Distributions
5
Internal Revenue Service. Rollovers of After-Tax Contributions in Retirement Plans
6
eCFR. 26 CFR 1.408A-4 – Converting Amounts to Roth IRAs
7
Internal Revenue Service. Instructions for Form 8606 Nondeductible IRAs
8
Internal Revenue Service. About Form 8606, Nondeductible IRAs
9
Internal Revenue Service. Waiver of 60-Day Rollover Requirement Rev. Proc. 2016-47
10
Internal Revenue Service. Retirement Plans FAQs Relating to Waivers of the 60-Day Rollover Requirement
11
Internal Revenue Service. Retirement Plans FAQs Regarding SIMPLE IRA Plans
12
Internal Revenue Service. Instructions for Forms 1099-R and 5498
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Internal Revenue Service. Instructions for Forms 1099-R and 5498 (2025)