Roth IRA Rollover Rules

(5 of 6)

Roth IRA Rollover Rules

A rollover is the moving of any investment from its current custodian to another. A Roth IRA must meet the following requirements to keep its tax-deferred status:

• The account may be rolled over only once per year.
• The funds must be placed into the new IRA within 60 days, or a taxable distribution will have occurred.
• If any or all of the IRA funds are not rolled over, the 10 percent early distribution penalty will apply to taxpayers under age 59½, in addition to ordinary income tax.

New IRS rule

You can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs you own, whether a traditional, Roth, SEP, or SIMPLE IRA.

You can, however, continue to make as many trustee-to-trustee transfers between IRAs as you want. A trustee-to-trustee transfer is one in which the trustee of your IRA (that is, the custodian holding it) transfers your IRA funds directly to another custodian instead of to you first.

You can also make as many rollovers from traditional IRAs to Roth IRAs ("conversions") as you want.

Rolling over funds from certain other retirement accounts

A recent IRS rule allows you to take after-tax portions of a 401(k), 403(b), or 457 plan and roll them into a Roth IRA. The advantage of such a move is that any growth in the Roth IRA will be tax-free (provided that you obey the rules for qualified withdrawals, of course), which is not possible in the other accounts.