IRA Rollover Timelines: How Long Do You Have To Complete It?

Quick answer

• You generally have 60 days to complete a direct or indirect IRA rollover.
• Missing the 60-day deadline can result in taxes and penalties on the withdrawn funds.
• Direct rollovers are often simpler as funds go from one custodian to another.
• Indirect rollovers involve receiving a check, which requires you to deposit it within the 60-day window.
• There’s a “one-rollover-per-year” rule for traditional IRAs, which doesn’t apply to direct rollovers.
• Always confirm specific deadlines and rules with your financial institution and the IRS.

What to check first (before you invest)

Time Horizon

Before initiating any rollover, consider when you might need access to these funds. If you anticipate needing the money within a few years, it might influence whether you roll it into a different type of account or keep it invested aggressively. A longer time horizon generally allows for more aggressive investment strategies.

Risk Tolerance

Your comfort level with market fluctuations is crucial. A rollover might be an opportunity to adjust your investment allocation based on your current risk tolerance. If you’re more risk-averse now than when you first invested, you might choose more conservative options.

Emergency Fund

Ensure you have a separate, readily accessible emergency fund covering 3-6 months of living expenses before considering any investment moves. Rolling over retirement funds should not jeopardize your ability to handle unexpected costs.

Fees and Tax Impact

Understand the fees associated with both your current and potential new accounts. These can include administrative fees, investment management fees, and transaction costs. Also, be aware of any potential tax implications. While most rollovers are tax-free, improper handling can trigger taxes and penalties. Check the official IRS guidelines or consult a tax professional for specifics.

Account Type (401(k), IRA, Brokerage)

Identify the type of account you are rolling over from and the type of account you intend to roll it into. For example, rolling a 401(k) into an IRA has different considerations than rolling one IRA to another. Each account type has its own rules, contribution limits, and withdrawal provisions.

Step-by-step (simple workflow)

1. Identify the Source Account: Determine exactly which retirement account you are moving funds from (e.g., a former employer’s 401(k), a traditional IRA, a Roth IRA).

• What “good” looks like: You know the name of the financial institution holding the funds and the account number.
• Common mistake: Not knowing the exact account details, leading to delays or errors.
• How to avoid: Gather all statements and account information for the source account before starting.

2. Choose the Destination Account: Decide where you want to move the funds. This could be a new IRA, an existing IRA, or a brokerage account (though rolling retirement funds directly into a non-retirement brokerage account is usually not advisable due to tax implications).

• What “good” looks like: You have selected a custodian and opened the new account, or you know which existing account you will use.
• Common mistake: Not opening the destination account before initiating the transfer, causing funds to be held without investment.
• How to avoid: Open your new IRA or confirm your existing one is ready to receive funds before you start the rollover process.

3. Determine Direct vs. Indirect Rollover: Decide if you want the funds sent directly from the old custodian to the new custodian (direct) or if you will receive a check and deposit it yourself (indirect).

• What “good” looks like: You understand the pros and cons of each method for your situation.
• Common mistake: Choosing an indirect rollover without realizing the strict 60-day deadline and the risk of withholding taxes.
• How to avoid: Favor direct rollovers when possible to avoid handling the funds yourself and the associated risks.

4. Initiate the Rollover: Contact your current custodian (for indirect) or the new custodian (for direct) to start the process.

• What “good” looks like: You have completed the necessary paperwork and provided all required information to the custodian.
• Common mistake: Providing incomplete or incorrect information, which can halt the process.
• How to avoid: Double-check all personal details, account numbers, and custodian information before submitting.

5. For Indirect Rollovers: Receive the Funds: If you chose an indirect rollover, you will receive a check.

• What “good” looks like: You have the check in hand and understand the amount.
• Common mistake: Losing the check or delaying depositing it.
• How to avoid: Keep the check in a secure place and prioritize depositing it immediately.

6. For Indirect Rollovers: Deposit the Funds: Deposit the check into your new retirement account.

• What “good” looks like: The funds are successfully deposited into your designated IRA.
• Common mistake: Depositing the check into a non-retirement account or failing to deposit it within 60 days.
• How to avoid: Ensure the deposit is made into the correct retirement account and track the date carefully.

7. For Direct Rollovers: Funds Transfer: The funds will be electronically transferred or mailed as a check directly from the old custodian to the new custodian.

• What “good” looks like: You receive confirmation from both custodians that the transfer is complete.
• Common mistake: Assuming the transfer is done without confirmation, leaving funds uninvested for too long.
• How to avoid: Follow up with both custodians to ensure the transfer has been fully processed.

8. Confirm Completion and Reinvest: Once the funds arrive at the new custodian, confirm the amount and reinvest them according to your chosen investment strategy.

• What “good” looks like: Your money is fully invested in your new account, aligned with your financial goals.
• Common mistake: Leaving the funds in a money market or cash position for an extended period, missing out on potential growth.
• How to avoid: Have your investment plan ready and act quickly to reinvest once the funds are settled.

Risk and diversification (plain language)

• What is risk? Risk is the chance that your investments might lose value. For example, if you invest $1,000 in a stock, and its value drops to $800, you’ve experienced a $200 loss, or risk.
• Diversification spreads risk. Imagine putting all your eggs in one basket. If you drop it, all the eggs break. Diversification is like putting your eggs in multiple baskets. If one basket falls, you still have eggs in the others.
• Asset classes are different baskets. These include stocks (ownership in companies), bonds (loans to governments or corporations), and cash equivalents (like money market funds). They tend to behave differently in various market conditions.
• Investing in different industries helps. Even within stocks, owning shares in tech companies, healthcare companies, and energy companies can reduce risk. If one industry struggles, others might be doing well.
• Geographic diversification is key. Investing in companies based in the U.S. and also in international markets can protect you if one country’s economy faces difficulties.
• The “one-rollover-per-year” rule. For traditional IRAs, you can only take advantage of the 60-day rollover rule once every 12 months for any IRA distribution. This rule applies to indirect rollovers. Direct rollovers from one IRA to another, or from a 401(k) to an IRA, do not count toward this limit.
• Market drops are normal. Stock markets go up and down. This is a natural part of investing.
• What to do during market drops: During market downturns, it’s often best to stay calm and stick to your long-term investment plan. Avoid making emotional decisions to sell everything. If you have a diversified portfolio, it’s designed to weather these storms. For some, market dips can even be an opportunity to buy investments at a lower price.

Common mistakes (and what happens if you ignore them)

| Mistake | What it causes