Moving IRA Money? 4 Rules That Can Be Hard to Undo

First: “transfer” and “rollover” are not interchangeable

For a normal IRA-to-IRA move, a trustee-to-trustee transfer sends the assets directly from one IRA trustee to another. The IRS says this is not a rollover, is generally tax free, and is not affected by the one-rollover-per-year rule.

A 60-day rollover is different: the distribution is paid to you and you generally have 60 days to put the eligible amount into another retirement account. Once you take possession of the money, more rules come into play.

1. A non-spouse inherited IRA generally cannot be “rolled over” like your own IRA

If you inherit an IRA from someone other than your spouse, the IRS says you generally cannot treat it as your own IRA, contribute to it, or roll amounts into or out of it. You can make a trustee-to-trustee transfer if the receiving account remains an inherited IRA properly maintained in the deceased owner’s name for your benefit.

The same distinction matters when a non-spouse beneficiary inherits money from an employer retirement plan. IRS guidance allows an eligible distribution to move directly by trustee-to-trustee transfer to an inherited IRA. If the plan instead distributes the money directly to the non-spouse beneficiary, the distribution generally cannot later be turned into a rollover by depositing it into an IRA.

Required minimum distributions add another layer: an amount that is required to be distributed for the year is generally not eligible for rollover. The beneficiary rules depend on the original owner, the beneficiary and the year of death, so confirm the current distribution requirement before moving the account.

2. A 60-day IRA rollover can use up your one rollover for 12 months

The IRS generally allows only one IRA-to-IRA 60-day rollover in any 12-month period, regardless of how many traditional, Roth, SEP or SIMPLE IRAs you own. The limit applies across the person’s IRAs rather than separately to each account.

That does not mean you can only move an IRA once a year. Trustee-to-trustee transfers are not subject to the limit. Roth conversions, plan-to-IRA rollovers, plan-to-plan rollovers and IRA-to-plan rollovers are also outside this particular one-per-year IRA rule.

A simple example

Suppose you receive a distribution from IRA A on April 10 and complete a 60-day rollover into IRA B. In October, you decide to move IRA C. A second IRA-to-IRA 60-day rollover may be blocked by the one-per-12-month rule even though IRA C was not involved in the first transaction. A direct trustee-to-trustee transfer of IRA C may still be available.

3. A Roth conversion generally cannot be recharacterized back

A Roth conversion is a tax decision, not merely an account transfer. You move pretax or partly pretax retirement money into a Roth IRA and generally recognize taxable income on the taxable portion of the conversion.

For tax years beginning after 2017, the IRS says a conversion from a traditional IRA to a Roth IRA cannot be recharacterized back to a traditional IRA. That is different from the rules that can allow certain regular IRA contributions to be recharacterized.

This matters when someone converts a large amount because they expect a particular tax bracket, then income changes or markets fall. A lower account value after the conversion does not restore the old ability to simply reverse the conversion.

Terra’s Roth vs. Traditional guide explains the tax-timing tradeoff. It is useful context, but it does not replace tax-return-level analysis for a conversion involving mixed deductible and nondeductible IRA money.

4. Changing a 72(t)/SEPP withdrawal plan too early can trigger a tax recapture

Section 72(t) can allow certain people to take a series of substantially equal periodic payments from an IRA before age 59½ without the usual 10% additional tax. The benefit comes with a strict commitment.

The IRS says the series generally cannot be modified before the later of:

• the fifth anniversary of the first payment, or
• the date you reach age 59½.

If the series is modified too early, the consequences can reach backward. The IRS says the taxpayer can owe the 10% additional tax that would have applied to prior distributions if the exception had not been used, plus interest for the deferral period. The year of the modification can also have its own 10% additional-tax consequence.

There are narrow exceptions and permitted changes — including certain situations involving death, disability, complete depletion of the account and a permitted one-time change to the required-minimum-distribution method. But the general rule is that a 72(t) account should not be treated like an ordinary IRA once the payment series begins.

A smaller rule that can matter when the IRA distributes securities

There is another rollover rule that is easy to miss because most people move cash. If an IRA distributes property — for example, securities — and you complete a rollover, the IRS generally requires the same property to be rolled over. You generally cannot keep the distributed securities and substitute an equal amount of your own cash into the receiving IRA.

Employer-plan distributions have somewhat different rules for property and sale proceeds, which is another reason to identify whether the money is coming from an IRA or from a workplace plan before assuming the mechanics are the same.

Which path fits the transaction?

Before you move retirement money, ask these six questions

1. What exact account owns the assets now? Traditional IRA, Roth IRA, inherited IRA, 401(k), 403(b) and other plans can have different rules.
2. Who will receive the check or assets? “Payable to me” can be very different from “payable to the new trustee for my benefit.”
3. Is any amount an RMD? Required distributions generally cannot be rolled over.
4. Have I already done a 60-day IRA-to-IRA rollover in the last 12 months? If yes, confirm whether the next move can instead be a trustee transfer.
5. Is this actually a Roth conversion? If so, estimate the tax consequences before executing it.
6. Is this IRA under a 72(t)/SEPP schedule? If yes, treat any change as a technical tax decision.

Primary sources

1. Internal Revenue Service — Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs). Covers trustee-to-trustee transfers, 60-day rollovers, the one-rollover-per-12-month rule, inherited IRA transfer limits, Roth conversions and the same-property rule. IRS · Publication 590-A
2. Internal Revenue Service — Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs). Covers non-spouse inherited IRA treatment and beneficiary distribution rules. IRS · Publication 590-B
3. Internal Revenue Service — Rollovers of retirement plan and IRA distributions. Summarizes the 60-day rule, IRA one-rollover-per-year rule and transactions excluded from that limit. IRS · Rollover guidance
4. Internal Revenue Service — Substantially equal periodic payments. Explains the Section 72(t) exception, the required duration of a SoSEPP and the recapture tax if the series is modified too early. IRS · 72(t)/SEPP guidance
5. Internal Revenue Service — Instructions for Form 8606. Explains that traditional-to-Roth conversions made in tax years beginning after 2017 cannot be recharacterized back to a traditional IRA. IRS · Form 8606 instructions
6. Internal Revenue Service — Publication 575, Pension and Annuity Income. Covers direct trustee-to-trustee transfers from an employer plan to an inherited IRA for eligible non-spouse beneficiaries. IRS · Publication 575

Educational information only. This article summarizes federal tax rules and does not determine the treatment of a specific transaction. Plan documents, account registration, beneficiary status, basis, RMDs, state tax and transaction timing can change the result. Confirm the mechanics with the custodian or plan administrator before moving the assets, and use qualified tax or legal advice when the facts are complex.

Common questions

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