ONE 60-DAY ROLLOVER PER YEAR?

SCENARIO: In one calendar year, Jessie completes the following transactions:

1. Takes a partial distribution from her 401(k) and does a 60-day rollover to an IRA.
2. Does a 60-day rollover from one traditional IRA to another traditional IRA.
3. Takes another partial distribution from her 401(k) and, within 60 days, deposits the cash directly into a Roth IRA.
4. Takes a distribution from her traditional IRA and, within 60 days, deposits the cash directly into a Roth IRA.
5. Closes out her 401(k) and does a 60-day rollover of remaining plan assets to a traditional IRA.

QUESTION: Has Jessie violated the one-rollover-per-year rule?

ANSWER: No, she has not.

EXPLANATION: The one-per-year rollover rule works as follows: First, it is true that a person can do only one 60-day rollover per year. The rule gets even more strict when you realize it is applicable across all accounts. Also, “per year” is not a calendar-year 12-months, but a rolling 365 days. For example, if a person receives an IRA distribution on May 1 and does a 60-day rollover to another IRA, she is not eligible to do another 60-day rollover from any IRA to another IRA until the following May 1. (Note that the 12-month period begins with the date the funds are received by the account owner.)

However, the finer details of the one-per-year 60-day rollover rule are important so as to be able to maximize the legal movement of funds. The following rollovers ARE subject to the rule:

• IRA to IRA
• Roth IRA to Roth IRA

The following rollovers are NOT subject to the rule:

• Plan to IRA
• IRA to Plan
• IRA to Roth IRA (a Roth conversion)

In fact, of the five transactions completed by Jessie listed above, only item #2 was subject to the one-rollover-per year rule. An analysis of each transaction is as follows:

1. Plan-to-IRA rollover. Not subject to the one-per-year rule. A person can do as many plan-to-IRA 60-day rollovers as they wish.
2. IRA-to-IRA rollover. As mentioned, this is Jessie’s only transaction subject to the rule. She cannot do another IRA-to-IRA (or Roth IRA-to-Roth IRA) 60-day rollover for 365 days.
3. Plan-to-Roth IRA. This transaction qualifies as a valid Roth conversion.
4. IRA to Roth IRA. Also, a valid Roth conversion.
5. Plan-to-IRA. No restrictions on these transactions.