When you roll over the contents of one retirement account into another, you have 60 days to do it. For example, you might want to roll your 401(k) into an individual retirement account or roll your traditional IRA into a Roth IRA. If you don't make the rollover deadline, you may pay a penalty. Many account owners find it easier and safer to have the account trustee handle the rollover so there's less risk of missing the due date.
If you don't complete the rollover within 60 days -- not 60 business days -- the Internal Revenue Service treats the rollover as a regular withdrawal. You pay income tax on the money, unless you paid tax on a percentage of the original deposits -- that percentage is tax-free when you take it out. If you're under 59 1/2 years old, the minimum withdrawal age, you pay a 10 percent tax penalty on the botched rollover. That penalty applies regardless of whether the original deposits were taxable.
You get an automatic waiver if you follow all of the rollover procedures properly but the brokerage or financial institution made a mistake and missed the deadline. If you have another reason for a late roll over, you can apply to the IRS for a waiver. Valid excuses include disability, hospitalization, going to jail or getting sent to a war zone. Approval isn't automatic. If you're hospitalized but able to manage your financial affairs, the IRS may turn down your waiver.
Some account owners turn their rollover into a short-term loan. If you know you're getting a $5,000 bonus in 55 days you can spend $5,000 of the rollover now, then make it up with the bonus before the deadline. However, if you miss the deadline, the IRS will see you spent the account assets and it's unlikely to approve a waiver. If you missed the deadline by honest error or misreading the rules, that's unlikely to fly with the IRS, either.
One factor complicating the transfer is that the trustee for your old account has to take out 20 percent of the rollover for tax withholding. If you roll over $10,000, you only get $8,000 in cash. However, if you don't deposit $10,000 before the 60 days are up, you get taxed on the missing $2,000. If you have money available to make up the withheld amount, that's fine. If not, a trustee-to-trustee transfer is the way to go.