6 Facts Every IRA Owner Should Know About the 60-Day Rollover Rule

By Sarah Brenner, IRA Technical Expert
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IRA rollovers are subject to many rules. One of them is the 60-day rule. You have probably heard of this deceptively simple sounding rule, which has caused tax headaches for countless IRA owners. To avoid suffering a similar fate, here are 6 facts about the 60-day rule you should know to be sure your intended rollover goes smoothly.

1. A rollover must be completed by the 60^th calendar day after the day you receive the distribution from your IRA or company plan. The 60-day period does not start the day the funds leave the retirement account or with the date of the check you receive from the IRA or plan custodian. For example, if you request a distribution from your IRA, the IRA custodian may processes your request and mail you a check. You must then roll over the distribution by the 60^th calendar day after the day you receive the check in the mail.
    
2. The 60-day period is measured in calendar days, not business days. The IRS has approved private letter rulings requesting extra time for rollovers when the 60^th day falls on a weekend. However, your best plan is to not wait until the last minute. To avoid problems with the 60-day rule, roll over your distribution as soon as possible.
    
3. During the 60-day period, you may do what you like with your funds. You may choose to invest the funds or use them for another purpose. If you invest your funds during the 60-day period, you may not roll over the gains or earnings; you can only roll over the same asset you took out of the IRA.
    
4. There are some exceptions to the 60-day rule. Exceptions exist for funds that are “frozen” by regulators during the 60-day period due to the threat of insolvency of a financial institution, military personnel serving in a combat zone, and those living in a federally-declared disaster area. An IRA owner may roll over a distribution taken for the purchase of a first home within 120 days when there is a delay or cancellation of the sale of the residence. An automatic extension of the 60-day rule is also available if the failure to complete the rollover is solely due to an error by the financial organization and the funds are rolled over within a year of the date the 60-day period began. To determine if one of these exceptions applies to you, it is always a good idea to consult with a knowledgeable tax advisor.
    
5. The 60-day rollover rule does not apply to trustee-to-trustee transfers between IRAs, direct rollovers to IRAs from company plans, or Roth conversions when the funds are paid directly from the traditional IRA to the Roth IRA. You may want to consider one of these transactions, rather than having a distribution be paid to you, to avoid 60-day rule complications.
    
6. The IRS has the authority to waive the 60-day rollover rule. The IRS may extend the 60-day period in cases where failure to do so would be against equity or good conscience. You need to request a private letter ruling to get a hardship waiver. This can be expensive. You will have to pay a fee to the IRS and also pay a tax professional to prepare the request. The fee will depend on the amount of the rollover. The IRS will look at the facts and circumstances in making the determination.