Therefore, the 60-day rule applies when you make an indirect reinvestment from a retirement plan and you'll have to do it within that time frame or you'll have to pay some taxes and penalties. However, in some circumstances, the IRS won't enforce the 60-day requirement, but applying for an exemption requires even more paperwork. You could renew an IRA account, for example, while you're still working at 60 for your current employer. Now that you meet the minimum age requirement for making distributions, you can make a retirement from service and transfer it to an IRA.
You have 60 days from the date you receive the distribution to transfer the distributed funds to another IRA and not pay taxes until you withdraw. In general, you can't transfer more from one IRA to another in a 12-month period, he explained. Otherwise, you must include reinvestment in your gross income and you may be subject to a 10% penalty for early retirement before age 59½. Most distributions from retirement plans are taxable and carry a 10% penalty for early retirement, unless you are eligible for one of the exceptions.
However, these exceptions are account-specific and may not apply after you transfer money from a 401 (k) to an IRA, or vice versa. That happens quite often, Appleby said. The IRS allows tax-free and penal-free reinvestment from one tax-advantaged retirement plan or account to another, but only if the 60-day reinvestment rule is followed. The IRS reinvestment table provides details on what plans can be transferred to each other and also includes guidance on annual limits for 60-day renewals.
You'll need to consider the 60-day reinvestment rule when you make a reinvestment or transfer from a retirement account, such as a 401 (k) or IRA, to another retirement account, although the rule also applies to health savings accounts and other tax-advantaged retirement accounts. It's crucial to understand the 60-day reinvestment rule, which requires you to deposit all of your funds into a new IRA, 401 (k), or other qualified retirement account within 60 days. You have 60 days to complete the renewal of a retirement plan or IRA and the time starts to run out when you receive the income, he explained. According to Denise Appleby, CEO of Appleby Retirement Consulting, many investors make costly mistakes when transferring funds without consulting a professional to to guide them.
The IRS only allows a transfer from one IRA to another IRA (or the same IRA) in a 12-month period, regardless of the number of IRAs you own. If you have a traditional IRA and want to transfer funds to a Roth IRA, this is called a “Roth conversion.” With an indirect reinvestment, you take control of the funds to transfer them yourself to a retirement account. The 60-day rollover rule can be inconvenient in the process of transferring your retirement accounts, but it doesn't have to be a inconvenience. This means that if you have a SEP IRA, a SIMPLE IRA, a traditional IRA, and a Roth IRA, all receive the same treatment for reinvestment purposes under the 60-day rule.
Since so many Americans feel behind in paying their retirement savings, it's not advisable to break the 60-day reinvestment rule. Either way, the 60-day reinvestment rule can be a convenient way to access money in a short-term retirement account. You have 60 days from the date you receive an IRA account or a distribution from a retirement plan to reinvest or transfer it to another plan or IRA. Keep in mind that with this type of transfer, the IRA only allows you to make a 60-day rollover a year, even if the transfers involve different IRAs.
