If you think an IRA rollover is your best financial move, be sure to follow these rules.
IRS increases 401(k) contribution limits for 2026
The IRS will increase 401(k) and catch-up contribution limits for 2026, allowing workers to save up to $32,500 for retirement.
If you have an IRA and want to roll it over to another retirement account, we have good news for you. It’s completely doable. However, rollovers are not without risks. Consider this a primer on the regulations governing the 60-day rule and how to protect your assets.
ticking time bomb
The biggest mistake you can make when rolling over one retirement account to another has to do with the 60-day rule. If you take distributions from your IRA for the purpose of transferring funds to another account, you have exactly 60 days to complete the transfer. If you miss the deadline by even one day, the IRS considers the entire distribution to be taxable income.
Let’s say you plan to withdraw $100,000 from your traditional IRA and move it to another retirement account. However, for some reason the 60 day deadline has passed. Depending on your current tax bracket, you could face a tax liability of $24,000 to $37,000 or more. To make matters worse, if you are under age 59 1/2, you may be subject to a 10% early withdrawal penalty.
Solution: Choose the safe approach by requesting a “direct rollover” (also known as a trustee-to-trustee transfer). With a direct rollover, you never have to touch the money. Instead, your funds move directly between your current financial institution and your new financial institution, so you don’t have to worry about the 60-day rule.
Withholding tax trap
Let’s say you choose to have your money in your hands and are confident that you won’t miss the 60-day period. Although this “indirect rollover” is optional, it’s important to understand that your current plan administrator will withhold the 10% federal tax unless you opt out of withholding (if you have an employer-sponsored IRA, such as a payroll deduction IRA, the 20% withholding is mandatory and you cannot opt out).
For this example, imagine you are rolling over $100,000 from an employer-sponsored IRA to another retirement account. If you don’t notify your administrator that you don’t want to have tax withheld, or if you choose a different withholding amount, you’ll receive $90,000 instead of $100,000. However, taxes and penalties will be due unless $100,000 is deposited into the new account.
In other words, the amount withdrawn from one account is must It will be deposited into your new retirement account to avoid an immediate tax bill. This may mean taking money out of your own funds to cover the amount withheld.
Solution: Carefully consider whether you want to take on the responsibility of an indirect rollover, especially if a direct rollover is easy to set up. If you choose an indirect rollover, let your current administrator know if you want tax withheld.
Having access to an IRA in the future can be invaluable. In the meantime, your goal as you prepare for retirement is to make all rollovers as simple as possible.
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