A rollover allows you to use the funds in your IRA for a very limited period of time without paying income tax on the distribution. Strict rules apply to prevent an IRA distribution from being taxable.
1. The money must be returned within 60 days or the distribution is taxed.
It’s also subject to an early payout penalty for people under age 591/2. IRS can offer relief if you return the funds to the IRA after the 60-day period. You can self-certify that you qualify for a waiver of the 60-day rule by filing Form 5329 with your return for the year of distribution, provided you meet certain conditions. The late rollover must be for one of 11 reasons and be completed within 30 days after the reason for failing to timely do it in the first place ceases. If you are unable to meet these conditions, your only option is to seek an IRS private letter ruling, a costly step.
2. You must roll over the same property that you received from the IRA.
For example, if you took a cash distribution, then cash must be re-deposited in a rollover. If the payout was in 150 shares of IBM stock, those same shares must be put back.
3. Don’t violate the one-rollover-every-12-months rule.
This rule applies on an aggregate basis to all your IRAs, not only an IRA-by-IRA basis. Note that IRA owners with multiple IRAs can make unlimited trustee-to-trustee transfers between IRAs in a 12-month period, because such direct transfers aren’t “rollovers”.
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