Beware the 60-Day Rollover | Charles Schwab

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Beware the 60-Day Rollover

February 17, 2017

Over time, you may have accumulated multiple IRAs with various financial institutions, which can make it difficult to get a clear picture of your investment performance. Moving all your IRAs to a single firm can help—but be careful how you go about it. If you act as the middleman, you could get hit with a tax bill.

There are two ways to transfer an IRA:

  • A direct (a.k.a. “trustee-to-trustee”) transfer, in which the funds never pass through the investor’s hands and there are no tax consequences.
  • An indirect transfer (a.k.a. “60-day rollover”), in which you liquidate your IRA, take possession of the funds and have up to 60 days to deposit the money into another IRA. Miss the 60-day window and the funds could be subject to ordinary income tax (plus any applicable early-withdrawal penalties), undercutting the benefits of opening an IRA in the first place.

The IRS limits retirement savers to one 60-day rollover per 12-month period (regardless of how many IRA accounts they hold) in order to discourage abuse of the provision as a short-term personal loan strategy. While there are some honor-system exceptions for those who miss the 60-day window—including postal error and misplacing your disbursement check—you could still end up owing penalties and taxes if the agency later disputes your exceptions.

The bottom line: When consolidating IRA accounts, it’s best to transfer the funds directly between institutions, lest the taxman come calling.

Important disclosures

This information does not constitute and is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax advisor, CPA, financial planner, or investment manager.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.


 

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