Rolling one IRA into another sounds like a great plan, especially if tax savings ensue. The Internal Revenue Service, however, has placed a limit on how many rollovers you can do in a year. You can perform a rollover only once per account per year. So before you firm up your rollover plans, get a handle on all the possible consequences.
Once in 12 Months
Don't confuse the IRS stricture of once in 12 months with once per calendar year. Clearly, under a calendar-year rule, you could do one rollover in December of one year and another in January of the next. Once in 12 months means that if you do a rollover in July 2013 you cannot do another one until July 2014.
The upside is that the IRS once-per-year rule is applied separately to each IRA you own. So if you have three IRAs, you can perform a rollover for each in the same 12-month period. Just be sure you allow 12 months to elapse between rollovers from a single account.
Prior to 2001, you could only roll IRA assets into another IRA. However, the Economic Growth and Tax Relief Reconciliation Act changed all that. You can now move a traditional IRA into a 401(k), 457(b) or 403(b) plan, as well as into a money purchase, profit-sharing or defined-benefit plan. In addition, you can roll any of those plans into a traditional IRA. You can also move a traditional IRA into a Roth IRA or a SEP-IRA. However, you cannot roll a traditional IRA to a SIMPLE IRA or to a Designated Roth Account. Interestingly, the IRS allows you to roll a SIMPLE IRA into a traditional IRA after you have held the SIMPLE IRA for two years. The IRS forbids moving a Roth IRA into anything other than another Roth IRA.
Borrowing from an IRA
You can also, believe it or not, take funds from one IRA and return them to the same IRA within 60 days, in effect taking a short-term loan from the account. As long as you put the money back in the account by the deadline, the IRS treats the series of events as a rollover. However, on the 61st day, any taxes or penalties that would apply to a distribution will be triggered. If you are under age 59 1/2 and take the money from a traditional IRA, you'll owe not only income tax on the amount withdrawn but a 10 percent penalty as well. If, before age 59 1/2, you roll money to and from a Roth that you've owned for less than five years, you'll owe tax and penalty on any earnings you withdraw. If you've had the account for five years or more, you'll just owe the 10 percent penalty.
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