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Independent life insurance and retirement income agency serving Salinas and Monterey County.
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Rollover mistakes are almost never about judgement. They are about a deadline nobody mentioned, a percentage withheld that nobody explained, or a limit that applies to one method and not another. This page collects the rules that actually cause tax bills, with the IRS page that states each one, so you can check anything you are told against the source. It is general education from an insurance-licensed agency, not tax advice; a CPA should confirm anything you plan to act on.
| Rule | What it says | When it applies |
|---|---|---|
| Direct rollover | Money moves institution to institution; nothing withheld, no deadline | Whenever you ask for it, which should be always |
| 20% mandatory withholding | An eligible rollover distribution paid to you from an employer plan has 20% withheld for federal tax | Only when the plan pays you rather than the receiving institution |
| 60-day deadline | Money paid to you must be deposited into an eligible account within 60 days of receipt, in full | Indirect rollovers only |
| Once per 12 months | One 60-day IRA-to-IRA rollover in any 12-month period, counted across all your IRAs | IRA-to-IRA 60-day rollovers only; not transfers, plan-to-IRA moves, or conversions |
| Additional 10% tax | Applies to taxable amounts distributed before 59½ unless an exception applies | Distributions, not rollovers |
| California additional 2½% | State-level additional tax on the taxable part of an early distribution | California residents, on top of the federal 10% |
| Required minimum distributions | Begin at the age the IRS publishes; a rollover does not remove them | Traditional IRAs and most plans |
Sources: the IRS pages on rollovers, the additional tax on early distributions and required minimum distributions, plus the Franchise Tax Board's Form 3805P instructions for the California figure.
The clock starts the day you receive the money, not the day you decide what to do with it, and it runs on calendar days. To complete a full rollover you must deposit the entire pre-withholding amount, which means replacing the 20% the plan kept from other savings and recovering it when you file. Deposit only the cheque you received and the withheld portion becomes a taxable distribution with the additional taxes attached. The IRS can waive the deadline in limited circumstances, including a self-certification procedure for certain qualifying reasons, but that is a remedy rather than a plan.
In broad terms, pre-tax employer money (401(k), 403(b), governmental 457(b)) can move to a traditional IRA or to another employer plan that accepts it; a traditional IRA can move to another traditional IRA or into a plan that accepts incoming rollovers; and Roth balances move to Roth accounts. Moving pre-tax money into a Roth is a conversion and is taxable in the year you do it. Two local cautions: money that originated in a governmental 457(b) loses its exemption from the federal 10% once it is in an IRA, and an annuity-based 403(b) can charge a surrender fee on the way out even though the IRS does not tax the move.
Related: rollover versus transfer, direct versus indirect, the options themselves, and the withdrawal tax calculator if any of this money might not be rolled over at all.
The ones that cause problems are: use a direct move and no deadline or withholding applies; an indirect rollover triggers 20% withholding from an employer plan and a 60-day deadline to redeposit the full pre-withholding amount; and only one 60-day IRA-to-IRA rollover is allowed per 12 months across all your IRAs.
Sixty calendar days from the day you receive the money, and you must deposit the entire pre-withholding amount. Missing it makes the shortfall a taxable distribution, with the additional taxes if you are under 59½.
No. It applies only to 60-day rollovers between IRAs. Moving an employer plan into an IRA is not counted, and neither are trustee-to-trustee transfers or Roth conversions.
Yes, by asking for a direct rollover so the plan pays the receiving institution rather than you. Withholding is triggered by the money passing through your hands.
It does not remove them. Distributions from a traditional IRA begin at the age the IRS publishes, and if the IRA holds an annuity, the contract's free-withdrawal amount needs to cover the distribution without a surrender charge.
The IRS lists them, and several are common: separation from service at 55 or later for that employer's plan, disability, certain medical expenses and substantially equal periodic payments. California conforms to most but not all; the FTB's Form 3805P instructions set out the differences.
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Schedule a CallReviewed by Roberto Morales, California Insurance License #0G97165. Next Wave Options is licensed for life and annuity products only and does not provide investment, tax or legal advice.
