Managing IRA Rollovers

An IRA rollover is the process of moving retirement assets from one tax-advantaged account to another, typically when an individual changes jobs or consolidates multiple accounts. This maneuver allows you to maintain the tax-deferred or tax-free status of your savings while gaining access to a broader range of investment options. For the 2026 tax year, the IRS continues to enforce specific timelines and procedural rules to ensure these transfers are not treated as taxable distributions.

Direct vs. Indirect Rollovers

A “Direct Rollover” (or trustee-to-trustee transfer) is the most efficient way to move funds, as the money is sent directly from one financial institution to another. In this scenario, you never take possession of the funds, no taxes are withheld, and there is no limit on how many direct transfers you can perform in a year. Conversely, an “Indirect Rollover” occurs when the funds are paid directly to you. You then have exactly 60 days to deposit the full amount into a new IRA to avoid taxes and penalties. Notably, for indirect rollovers from employer plans (like a 401(k)), the plan administrator is legally required to withhold 20 percent for federal taxes; to complete the rollover, you must use personal funds to replace that 20 percent, or the withheld amount will be treated as a taxable distribution.

The One-Rollover-Per-Year Rule

The IRS imposes a strict “one-per-year” limit on indirect, 60-day rollovers between IRAs. This rule means you can only perform one such rollover in any 12-month period, regardless of how many IRAs you own. It is important to note that this limit does not apply to direct trustee-to-trustee transfers, nor does it apply to rollovers from an employer-sponsored plan (like a 401(k)) into an IRA. Violating this rule can result in the second rollover being treated as a taxable distribution and an excess contribution, which carries a 6 percent annual excise tax for as long as the money remains in the account.

Rolling Over Employer Plans (401k to IRA)

Consolidating an old workplace 401(k) into a Rollover IRA is a common strategy to simplify a retirement portfolio. When moving these funds, it is vital to match the tax treatment: pre-tax 401(k) funds should go into a Traditional IRA, while designated Roth 401(k) funds should go into a Roth IRA. If you choose to roll pre-tax 401(k) funds directly into a Roth IRA, this is considered a “Roth Conversion,” and you will be required to pay income tax on the entire converted amount in the year the transfer occurs.

Special 2026 Rollover Provisions

Beginning in 2024 and continuing through 2026, the SECURE 2.0 Act has introduced a new rollover option for unused 529 College Savings Plan funds. Beneficiaries can now roll over up to a lifetime limit of $35,000 from a 529 plan into a Roth IRA, provided the 529 account has been open for at least 15 years. These rollovers are subject to annual Roth contribution limits ($7,500 in 2026), meaning it may take several years to move the full $35,000. This provision provides a valuable “escape valve” for families who have overfunded their education savings and wish to pivot those assets toward retirement.

Documentation and Reporting

Even though a properly executed rollover is not taxable, it must still be reported to the IRS. You will receive a Form 1099-R from the distributing institution showing the total amount moved, often with a “Code G” for direct rollovers. You then report this on your federal tax return (Form 1040) by entering the total distribution on the “IRA distributions” line and entering “0” for the taxable amount, writing the word “Rollover” next to the line. Keeping these records is essential for proving the movement of funds was a non-taxable event in the event of an IRS inquiry.

Source: Internal Revenue Service (IRS), “Rollovers of Retirement Plan and IRA Distributions” and Publication 590-A (2026 Update).