Indirect Rollover: Its Definition and Requirements


Key Takeaway:

  • Indirect rollover is a type of retirement account distribution where funds are transferred from one retirement account to another without ever being in the account owner's possession.
  • There are two types of indirect rollovers: 60-day rollovers and trustee-to-trustee transfers.
  • Rules and restrictions apply to indirect rollovers, including timeframes for completing transfers and limitations on how often they can be done. Eligibility criteria and mandatory documentation also apply.

Are you confused by the definition, rules and requirements of an indirect rollover? Here s everything you need to know to navigate this complex process and ensure you stay IRS compliant.

Indirect Rollover Definition

Do you want to know what an indirect rollover is? Let's explore it! This section will explain the definition, rules, and requirements of an indirect rollover. Plus, we'll go over the different types. It's all the info you need to know!

Explanation of Indirect Rollover

Indirect Rollover is a method of moving funds from one retirement account to another without incurring tax or penalty. It involves withdrawing funds from the original account and depositing them into the new one within a certain time frame. Indirect rollovers can only be done once every 12 months.

When conducting an indirect rollover, the individual must ensure that they receive the distribution check from their current provider and deposit it into the new account within 60 days. Failure to do so will result in taxes being imposed on the distribution amount, as well as early withdrawal penalties if applicable.

It's important to note that indirect rollovers cannot be done for inheriting an IRA, nor can they be done if the account owner has already taken his or her required minimum distributions (RMDs) for the year.

According to Investopedia, "the IRS allows just one IRA-to-IRA (or Roth IRA-to-Roth IRA) rollover per taxpayer per 12-month period," highlighting the importance of carefully considering whether an indirect rollover is appropriate for your situation.

Who knew there was more than one way to roll over your retirement funds? Indirect rollovers - not just for acrobats anymore!

Types of Indirect Rollovers

For the various forms of indirect rollovers, let's consider some important factors.

Here is a table that illustrates the different types:

Type of Indirect RolloverDetails 60-Day RolloverAllows you to roll over funds into another qualified account within 60 days from withdrawal. Trustee-to-TrusteeTransfer from one account directly to another without receiving any amount personally. Reverse RolloverA type of rollover wherein the distributed funds are withdrawn with one IRA and deposited into another IRA in a year.

When considering an indirect rollover, it's essential to adhere to IRS rules and regulations regarding withdrawing and transferring funds.

Pro Tip: Before doing an indirect rollover, consult a financial advisor/ tax professional who can provide valuable advice on the best option for your situation. Rolling with the rules: how not to get caught in a tax storm during your indirect rollover.

Rules for Indirect Rollovers

To make sense of the rules for indirect rollovers with deadlines and frequency caps, look at "Indirect Rollover Definition, Rules, Requirements". These rules explain when and how you can move retirement cash between accounts without taxes or fines. Get informed!

Timeframe Restrictions

There are Timeframe Restrictions imposed upon indirect rollovers that individuals must adhere to. The limitations are based on certain factors, such as the type of account from which the funds are withdrawn and the account into which they are transferred. These factors determine how long the individual has before redepositing funds after withdrawal.

It is vital to note that an indirect rollover can be performed once every 12 months per account without incurring any penalties or fees. This restriction is enforced by the Internal Revenue Service (IRS) to prevent tax evasion and abuse of retirement accounts. Additionally, if an individual had already done an indirect rollover within a 12-month period for a specific IRA, it couldn't be performed again until another year has passed.

It's essential to keep track of all your transactions and ensure that you do not exceed these limits. If you end up making a prohibited transaction, then you may face IRS penalties or lose your qualified status and need to pay taxes on the entire account balance.

In 2014, a Tax Court case under Bobrow vs. Commissioner set stricter rules for IRA indirect rollovers. Robert T. Bobrow and Jeanne L. Bobrow failed to follow some regulations when doing indirect rollovers with their IRAs in 2008. They held two IRA accounts, one with Vanguard Group and the other at Fidelity Investments when they transferred money incorrectly between them through two separate transactions over a five-day period.

The new ruling limited individuals only allowed one nontaxable 60-day rollover within twelve months among all their Traditional IRAs owned instead of an individual IRA-owned limitation before this decision was made.

Looks like you can't roll over so much, even if you really want to- better stick to pancakes.

Limitations on Frequency

The regulations governing indirect rollovers restrict the frequency of such transactions. If you wish to transfer money from one IRA account to another via indirect rollover, you are only eligible for this transaction once per year.

Moreover, if you decide to make additional rollover requests from your other accounts within 12 months, they may be considered as excess contributions. This would lead to penalties and possible tax consequences.

It is vital to keep track of your IRA accounts' withdrawal schedules and balances to avoid unintentionally breaking the "once-per-year" rule. Failure to comply with the rules could result in losing valuable retirement savings.

Make sure not exceeding the limitations on frequency set out by IRS and seek guidance from a financial advisor when making an indirect rollover request. By following the direct guidelines set for carrying out indirect rollovers, you can secure your retirement funds without losing them on taxes or penalties!

You'll need more paperwork than a government spy with these requirements for indirect rollovers.

Requirements for Indirect Rollovers

To do an indirect rollover, you must meet certain criteria and submit certain documents. Here, we'll discuss what those criteria and documents are. To complete the rollover, you must fulfill the eligibility criteria and submit the mandatory documentation.

Eligibility Criteria

To qualify for an indirect rollover, the individual needs to meet certain requirements. These conditions include having funds in a qualified retirement plan or traditional IRA and being at least 59 years old or facing a financial hardship. Additionally, the IRA owner can perform one indirect rollover per year.

Failing to satisfy the eligibility criteria may result in tax penalties and other sanctions from the IRS. However, you may have other options available, such as a direct rollover or leaving the funds in your account.

It's important to note that there are specific rules governing indirect rollovers, including the need to deposit the funds into another eligible account within 60 days. Otherwise, you could face taxes and penalties on the amount withdrawn.

According to Investopedia, "The IRS only allows one IRA-to-IRA (or Roth IRA-to-Roth IRA) rollover per person per year".

Remember when homework was the worst kind of mandatory documentation? Yeah, well now it's time to adult and gather the paperwork for an indirect rollover.

Mandatory Documentation

Certain Identification and Verification Documents are necessary to proceed with Indirect Rollovers. These documents include driver's license, passport, and bank statements to name a few. They ensure that the process of rollover is secure and legitimate. Ensure these requirements have been met before proceeding with an Indirect Rollover.

In addition to identification documents, the IRS requires specific forms to be filled out for Indirect Rollovers. These forms include Form 1099-R and Form 5498. The latter form is needed when rolling over money from one retirement account to another. Keep these forms in mind when initiating an Indirect Rollover.

Note: Remember that failing to complete proper documentation can cause unnecessary delays or even disqualify you from completing an Indirect Rollover.

It is important to verify information about the required documentation before starting an Indirect Rollover process. According to, the penalties for non-compliance may come with taxes up to 50% of your account balance - so it's best not to take any chances!

Some Facts About Indirect Rollover Definition, Rules, Requirements:

  • ✅ An indirect rollover is when funds are transferred from one retirement account to another without the account holder taking physical possession of the money. (Source: Investopedia)
  • ✅ To perform an indirect rollover, the account holder must receive a check from the current retirement plan and deposit it into the new plan within 60 days. (Source: The Balance)
  • ✅ Indirect rollovers are only allowed once every 12 months. (Source: IRS)
  • ✅ If the account holder fails to meet the 60-day deadline, the rollover will be deemed a taxable distribution and subject to penalties. (Source: NerdWallet)
  • ✅ Indirect rollovers are not available for certain retirement accounts, such as inherited IRAs and SIMPLE IRAs. (Source: Fidelity)

FAQs about Indirect Rollover Definition, Rules, Requirements

What is an Indirect Rollover?

An Indirect Rollover is a type of rollover where the funds from an existing retirement account are transferred to a new retirement account via the account holder, rather than the employer or financial institution.

What are the Rules of Indirect Rollover?

The rules of Indirect Rollover are as follows: the account holder must receive the funds from their previous retirement account within 60 days of the distribution; the distribution must be rolled over into a new retirement account; and the account holder can only use this method once per year.

What are the Requirements for an Indirect Rollover?

The requirements for an Indirect Rollover are as follows: the account holder must have a qualified retirement account to which the distribution can be rolled over; the account holder must ensure the distribution is received and deposited into the new retirement account within 60 days; and the account holder must not have used this method for a rollover in the previous 12 months.

Can Indirect Rollovers be made into any Type of Retirement Account?

Indirect Rollovers can be made into most types of retirement accounts, such as Traditional and Roth IRAs, as well as 401(k)s and 403(b)s. However, it is important to confirm with the specific financial institution hosting the account as there may be additional restrictions.

Is there a Limit to how much can be Rolled over using an Indirect Rollover?

There is no limit to the amount that can be rolled over using an Indirect Rollover. However, it is important to note that the entire distribution amount must be deposited into the new retirement account in order for it to qualify as an Indirect Rollover.

What Happens if the 60-day Time Limit for an Indirect Rollover is exceeded?

If the 60-day time limit for an Indirect Rollover is exceeded, the distribution will be considered taxable income and may also be subject to an early withdrawal penalty. Therefore, it is important to ensure that all necessary steps are taken in a timely manner to avoid any negative consequences.