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Running Afoul of the One-Rollover-Per-Year Rule (and How to Fix It)

elephant seal2/19/2014 update: This rule has been updated to allow only one rollover for ALL IRAs per year. See the article The One-Rollover-Per-Year Rule: Revised for more information.

In case you’re not aware of it, there is a strict rule that the IRS applies with regard to IRA rollovers:  you are allowed to roll funds over from an IRA using the 60-day rule only once during each 12-month period.  FYI: Trustee-to-trustee transfers are not considered rollovers for this rule.

Here’s an example of what could happen:  Early in the year, you withdraw some money from your IRA to help you catch up on some bills.  Then, you receive a bonus a little later in the year, within the 60-day period from your withdrawal, so you deposit those funds back into the same IRA.

Then, later in the year, you want to take another short-term distribution from your IRA, and once again you have the opportunity to put the funds back into the first IRA… but now you’re stuck.  You can’t roll the distribution back into the original IRA, since you’re still within the 12-month period, and it won’t be up until after your 60 days is past.  And you can’t roll it into another IRA either, since the rule applies to the IRA from whence you rolled out.

Here’s what you can do

You have two main choices in a situation such as the one above:

1) Rollover the IRA money into a qualified plan, such as a 401(k) or 403(b).  Not all of these plans allow “roll-ins” but many are beginning to allow them.  The 12-month rule doesn’t apply to rollovers from an IRA to other types of plans.

2) Convert the funds to a Roth IRA.  Even though you’ll have to pay tax on the conversion, this can be a valid move as well.  The 12-month rule also doesn’t apply to conversions.  Plus (and here’s the sneaky part) if you wanted to recharacterize the Roth conversion, you could place the converted funds back in the original IRA, even if it was still within the 12-month period.  This is due to the fact that a recharacterization is NOT considered a rollover for the purpose of the one-rollover-per-12-month rule.

Photo by Mike Baird


  1. […] compelled to provide an additional update to the posts I’ve provided in the past in the article Running Afoul of One Rollover Per Year Rule and its follow-up More on the One-Rollover-Per-Year Rule.  This is primarily to provide clarity to […]

  2. […] This post was mentioned on Twitter by Roger Wohlner, CFP®, IRA Owner's Manual. IRA Owner's Manual said: How to fix the one-rollover-per-year rule if you've got problems with it: […]

  3. Running Afoul of the One-Rollover-Per-Year Rule (and How to Fix It) - Finance | Business News Online says:

    […] IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (or in any attachment) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication (or in any attachment).Running Afoul of the One-Rollover-Per-Year Rule (and How to Fix It) […]

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