Once-Per-Year Rollover Rule – The Exceptions to the Rule

As with most IRA rules, there are exceptions to the once-per-year rollover rule. The rule applies to IRA-to-IRA and Roth IRA-to-Roth IRA 60-day rollovers. Just to be clear, an IRA rollover occurs when a check is issued by the IRA or Roth IRA custodian that is payable to the account owner. The following are the exceptions.

Check Payable to the New Custodian

When a check is issued that is payable to the new custodian, not to the IRA or Roth IRA account owner, this is considered a transfer, not a rollover. There is no 60-day limit on getting the check deposited into the new account.

Roth Conversions

A Roth conversion is treated as a rollover for tax purposes. You are considered to have taken a distribution from the IRA and then rolled that distribution into the Roth IRA, even if the transaction is directly from the IRA account to the Roth account and no check is actually issued. Since this is an IRA-to-Roth IRA transaction, it is not subject to the once-per-year rollover rule which only applies to IRA-to-IRA or Roth-to-Roth 60-day rollovers. You can do your Roth IRA conversion as a 60-day rollover, but it is still not subject to the once-per-year rule.

Moving Employer Plan Funds into an IRA

All distributions from employer plans are rollovers under the tax code. They can be direct rollovers where the funds go directly from the plan to the IRA or they can be indirect rollovers which are the same as 60-day rollovers. These do not count in the once-per-year rule. The funds are going from an employer plan to an IRA or Roth IRA so, again, this is not an IRA-to-IRA or Roth-to-Roth transaction.

Moving an IRA to an Employer Plan

This is the reverse of the previous paragraph but the result is the same. This transaction is an exception to the once-per-year rule.

Miscellaneous Exceptions

There are a few much lesser used transactions that are also exceptions to the once-per-year rule.

· Qualified Reservist Repayments – Used when a reservist repays a distribution taken while on active duty.

· Rollovers of Service Members Group Life Insurance (SGLI) Payments to a Roth IRA – Used when a beneficiary of SGLI payments roll a death benefit to a Roth IRA.

· Rollovers of First-Time Homebuyer Distributions – Used when a first-time home purchase is not completed and funds withdrawn from an IRA or Roth IRA are redeposited.

· Involuntary Distributions from Resolution Trust Company (RTC)