I recently received the following reader question:
I’m confused. I’ve read about a one-per-year limit for 60-day rollovers. Do Roth conversions count as an IRA Rollover? Can I do more than one Roth conversion in a 12-month period?
At any time, you are allowed to move funds from one individual retirement account (IRA) into another IRA without the transfer counting as a distribution. This process is referred to generically as an IRA Rollover. There are many reasons you could be doing an IRA Rollover, and there are different tax consequences or no tax consequence depending on the type of rollover you are performing.
A Roth conversion is a type of IRA Rollover where you move assets from a traditional tax-deferred retirement account to an after-tax Roth account. Meanwhile the most common type of IRA Rollover is moving funds from an employer-sponsored retirement account, such as a 401(k), into a traditional IRA at a custodian of your choice.
The easiest and cleanest way to accomplish an IRA Rollover is using what is called a trustee-to-trustee transfer or a direct rollover. A direct rollover is when the funds move directly from one account to the other without the owner ever having control of the funds.
The alternative to a trustee-to-trustee transfer is riddled with many rules and potential landmines. This alternative, simply referred to as a rollover contribution by the IRS, is where one account distributes a check for all the assets it holds made out to the account owner. Then, within the allowed time period of 60 days, the account owner deposits that check into a different retirement account.
You are only allowed to do one 60-day rollover contribution per 12-month period because some people tried use rollover contributions to fund flipping businesses. They rolled the funds out, purchased a fixer-upper, fixed it up, sold for a profit, and then recontributed the original funds to their IRA. The IRS did not like this strategy and put the “once per 12-month” and “60 day” requirements on rollover contributions to deter it.
Meanwhile, there is no limit on the number of trustee-to-trustee direct rollovers that you can do in a year.
In this way, you can do more than one Roth conversion in a year, but it does depend on the type of rollover methodology you employ.
Many employer-sponsored retirement plans only utilize checks to complete external rollovers. If that is the case, a check made out directly to your other retirement account is sufficient to qualify for the trustee to trustee transfer. However, if the plan insists on making the the check out to you personally, then this would count as your “once per 12-month” 60-day rollover contribution.
So long as you only do one of those though, you can do as many direct trustee-to-trustee rollovers as you’d like. In this way, most people can do any number of Roth conversions in one twelve-month period.
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