Avoid tax penalties when executing a 60-day indirect rollover. This video shows my step by step instruction moving my personal Roth IRA from Capital One to Fidelity Investments
Step 1: Withdraw money from your retirement account
Step 2: Deposit money to the new custodian within 60 days
Make sure:
The new custodian label the deposit as a 60-day indirect rollover
The account is in the same account type (Roth IRAto Roth IRA| Traditional ira to Traditional IRA) pre-tax and post-tax money do not mix
Indicate in your 1099-R that the early distribution is non-taxable (see video)
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A 60 Day Indirect Rollover Guide: What You Need to Know
Planning for retirement is a crucial step in ensuring a secure and comfortable future. Many individuals choose to take advantage of their employer-sponsored retirement plans, such as a 401(k) or an IRA, to save for retirement. However, there may come a time when you need to move funds from one retirement account to another, and understanding the rules and regulations surrounding this process is essential to avoid potential tax penalties.
One common method used to transfer funds from one retirement account to another is through an indirect rollover. An indirect rollover involves withdrawing funds from a retirement account and then depositing them into another eligible retirement account within a specified time frame. One such timeframe is the 60-day indirect rollover period.
What is a 60-day indirect rollover?
A 60-day indirect rollover refers to the window of time an individual has to complete the transfer of funds from one retirement account to another. In this type of rollover, the account owner first receives a distribution from the original retirement account in the form of a check or a direct deposit. They then have 60 days to deposit that distribution into another eligible retirement account, such as an IRA or a new employer-sponsored plan.
It is important to note that a 60-day indirect rollover can only be done once in a 12-month period, regardless of the number of retirement accounts an individual may have. Additionally, there are some exceptions in specific situations, such as the death of the account owner or financial institution errors, which may allow for additional indirect rollovers within a 12-month period.
Understanding the rules and potential pitfalls
While a 60-day indirect rollover can provide flexibility and control over retirement savings, there are certain rules and potential pitfalls that individuals need to be aware of to avoid unnecessary tax consequences.
1. Timeframe: The 60-day countdown begins on the day you receive the distribution. It is crucial to ensure that the funds are deposited into another eligible retirement account within this timeframe. Failure to do so may result in the distribution being treated as taxable income, potentially subject to an additional 10% early withdrawal penalty if you are under the age of 59 ½.
2. Withholding: When withdrawing funds from a retirement account, the plan administrator may be required to withhold a certain percentage for federal income tax purposes. If you choose to complete a 60-day indirect rollover, you must replace the full amount of the distribution, including the withheld amount, within the 60-day period. Failure to do so may result in the withheld amount being considered a taxable distribution.
3. Eligible Retirement Accounts: It is crucial to ensure that the new account receiving the rollover is an eligible retirement account under the Internal Revenue Code. Traditional IRAs, Roth IRAs, and certain employer-sponsored plans are typically eligible. Consult with a financial advisor or tax professional to confirm eligibility before initiating the rollover.
4. Multiple IRAs: If you have multiple IRAs, the 60-day indirect rollover rule applies to all IRAs collectively. You cannot take a distribution from one IRA and redeposit it into another IRA within the 60-day period if you have already performed an indirect rollover involving any IRA in the preceding 12 months.
5. Follow-up: Once the funds have been deposited into the new retirement account, retaining documentation of the rollover is crucial. This documentation should include records of the original distribution, receipts from the new retirement account, and any correspondences with financial institutions involved. This documentation will be essential to clarify any potential discrepancies with the IRS in the future.
Seeking professional guidance
Navigating the rules and regulations surrounding retirement account rollovers can be complex. Therefore, seeking guidance from a financial advisor or tax professional is highly recommended, especially when dealing with a 60-day indirect rollover. They can help ensure compliance with applicable rules, provide guidance on tax implications, and help you make informed decisions regarding your retirement savings.
In conclusion, a 60-day indirect rollover can be a useful tool for transferring funds from one retirement account to another. However, it is essential to familiarize yourself with the rules, limitations, and potential pitfalls associated with this process to avoid potential penalties and tax consequences. Seeking professional advice is crucial to ensure a smooth and successful rollover that aligns with your long-term retirement goals.
You’re amazing, thank you
Does this have to be distributed by paper check? Or can it be transferred electronically? Thank you so much. 🙂
Hello. I was considering doing a 401k rollover to an IRA but I took out loans on the 401K account. Could I rollover to an IRA take a withdrawal on the IRA to pay back the loans and then rollover what I paid back to the IRA?
Also what would be the best company to do a roll over?
How does the automatic waiver on the 60 days work for this line item on the IRS website: The funds are deposited into a plan or IRA within 1 year from the beginning of the 60-day rollover period. That makes it sounds like you actually have 1 year without penalty? I must be misunderstanding that Automatic Waiver Condition?
Hi. Thanks for this. Not many people know about this. I received a surprise check from a premature redemption of a roth IRA because the fund decided to liquidate. They did not advise me of what was happening. 3weeks later, I deposited the check into a different roth account, but like you pointed out, I got a 1099-r with the J code on box7 that looks like a reg redemption. I am using the free version of turbo tax and I can't find where or how to input this. The version you showed asked you some questions. Not mine. Is it because it's the free version, or is there something I'm missing? Can you help ? Any other software you recommend?
Thankyou! this was a very helpful video!
Awesome video!! I'm considering pulling $10k from my IRA as a 'loan' to use as a down payment for a house. From what I understand I wont be subject to taxes or a 10% penalty if I pay back within the 60d window. That said, are there any special forms I need to fill for the IRS?
I did a 401k distribution from Fidelity to my bank account. I decided to put the money into an IRA with Vanguard, under the 60 day time frame. I have a 1099-R document from Fidelity that has it listed as a distribution "income" that was taxed. Do I need follow up with Fidelity for an updated 1099-R and Informed them I did a 60 day rollover, or reach out to my new account holder "vanguard"?
Can I do this with my pre-taxed 401k through my current employer (it’s on Fidelity), and transfer to a Rollover IRA on Webull that will be a post tax account? I noticed you say something about account types having to be the same as far as post or pre tax. There is also a “deposit type” on Webull that says 60 day rollover. Thank you your input would be much appreciated!
I have a practically identical situation. Very helpful!
Thanks for the explanation. Only thing I still have trouble with is understanding what happens to the funds CapitalOne withheld. Are they sending that directly to the IRS as tax, or do they eventually release the funds once Fidelity confirms 60 day rollover?
Thanks
I have roth Ira money invested with lending club and the custodian is Alto . If I close my account with Alto (lending club)and I still have notes with lending club,Can I deposit to Fidelity the full value of my roth to fidelity if I can come up with funds from other sources ?Even some of my money (notes) are still with lending but it will be in my taxable account. Thank you !!
I am having hard time to deposit indirect rollover. Merrill seems they do not know anything.
Thank you for the video. It seems we can only do this once per 12-month period. Do you know if I can take money from both Traditional and Roth IRAs as long as I put all the money back into the correct respective account types within 60-days?
Thanks for video. I’m going to use the 60 day rollover to finance new house in November. Since the 60 days will not be up until 2022, if for some reason I don’t put the money back in my IRA, is the amount taxable for 2021 when I received the funds or 2022 when the funds were due? Thanks.
Quick Q. When I take the temporary withdrawal (<60 days), can I deposit those funds right back into the Roth or must I deposit into a traditional IRA then Rollover to the original Roth?
Thanks for the info.
Thank you, What to do I closed my ROTH IRA after 6 years during this COVID 19, now missed 60 days rule to transfer and still money in that IRA account.
The best explanation.
Thank you, very informative.
Wonderful explanation – thank you!