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Retirement Planning > Saving for Retirement > IRAs

Avoiding the Once-Per-Year IRA Rollover Trap

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What You Need to Know

  • Violating this IRS rule is one of the most expensive mistakes a client can make.
  • The rule doesn't apply to rollovers from a 401(k) account or to Roth IRA conversions.
  • The simplest way to avoid mistakes is to use trustee-to-trustee transfers between financial institutions.

To say that 2020 and 2021 have presented a planning challenge is an understatement. Now, with the most serious dangers of the pandemic receding into the rearview, many clients might be interested in taking steps to consolidate their retirement accounts and simplify their finances.

That can be trickier than many clients anticipate, especially for clients with multiple IRAs. Violating the “once per year” IRA rollover rule is one of the most expensive mistakes a client can make — and, unlike RMD mistakes, can’t simply be corrected or waived.

Because the IRS can’t waive the client’s violation of the once-per-year rule, it’s especially important to pay close attention to avoid falling into the potential traps that can cause the client to violate the rule and incur significant tax consequences. 

What Is the Once-Per-Year IRA Rollover Rule?

Clients can complete nontaxable rollovers between IRAs as long as the funds from the first IRA are deposited into the second IRA within 60 days. However, the client can only do this once in any 12-month period. If the client makes a second rollover within 12 months of the first rollover, the entire amount that was intended for rollover will be deemed distributed in a fully taxable transaction. 

The penalties don’t end there, however. If the client isn’t eligible to withdraw funds from the IRA because he or she hasn’t reached age 59 ½, the client can also be subject to the 10% early withdrawal penalty on top of his or her ordinary income tax rates. The rollover can also trigger the 6% tax on excess IRA contributions if the mistake isn’t corrected on time.

The rule applies to all IRAs — including traditional IRAs and Roth IRAs. It does not apply to rollovers between IRAs and employer-sponsored 401(k) plans. The rule also applies to all types of IRAs, so if the client has a SEP IRA, SIMPLE IRA or Roth IRA, the client is limited to one rollover per year across all types of accounts (Roth conversions do not count as rollovers).

The one IRA-to-IRA rollover per year rule applies regardless of how many IRAs the client has. This represents a change from prior thinking, where many believed that taxpayers with multiple IRAs could complete one tax-free rollover per IRA per year. 

IRA Rollover Traps to Avoid

It’s important to understand, as an initial matter, that the once-per-year rule is not actually a calendar year rule. It applies on a 12-month basis. The client cannot, therefore, complete one rollover late in 2021 and another early in 2022 without penalty.

Clients who inherit IRAs from a deceased spouse must also watch out for the once-per-year rule. If the client has executed another IRA rollover within the preceding 12-month period, that client cannot immediately roll the inherited funds into his or her own IRA. Instead, the surviving spouse must wait until 12 months have passed from the date of the previous rollover in order to avoid violating the rule.

Clients with certificates of deposit (CDs) that are actually registered as IRAs should also be advised of the rule when determining how to treat the matured CD funds — remembering that many clients may not even realize that their CD investment is actually registered as an IRA in the client’s name.

Are There Ways to Circumvent the Rule?

The simplest way to avoid violating the once-per-year rollover rule is to move IRA funds via direct trustee-to-trustee transfer between financial institutions. These direct transfers accomplish the client’s goal of consolidating accounts, but they aren’t treated as rollovers at all.

Perhaps the most confusing aspect of the once-per-year rule is that it actually applies to distributions of IRA funds. So, it is the date when the client receives the distribution from the IRA that is actually relevant in determining whether 12 months have elapsed. 

If the client receives Distribution A on Nov. 15, 2021, and rolls it into another IRA on Dec. 15, 2021, and later receives Distribution B on Nov. 20, 2022, the client can roll Distribution B into an IRA on Nov. 21, 2022, without violating the rule. That’s because more than 12 months have passed between her receipt of Distribution A and Distribution B.


The once-per-year IRA rollover rule is complicated. For most clients, the best solution is likely to rely on direct transfers of IRA funds between accounts to avoid the serious tax consequences that one simple mistake can generate.


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