Moving Retirement Money Without Paying Tax

An IRA transfer, often called a trustee-to-trustee transfer, moves money directly from one IRA custodian to another without the account owner ever receiving it. An IRA rollover pays the money out to the owner first, who then has 60 days to deposit it into another IRA or eligible plan to keep it tax-free.

Both can move retirement savings without tax, but they follow different rules. Transfers can be made as often as the owner likes, carry no withholding and are not reported as distributions, while a 60-day IRA-to-IRA rollover is limited to one in any 12-month period and puts the full burden of getting the money back in on time on the owner.

Choosing the wrong route is one of the most common and costly mistakes clients make with retirement accounts, and the exam tests it directly. For the full route from the exam to a career giving that advice, our complete guide to how to become an investment adviser representative covers every step.

Turn your New Year resolution into a pass with the FRC Series 65 playlists on YouTube

How a Trustee-to-Trustee Transfer Works

In a transfer, the owner opens the new IRA and signs a transfer request, and the receiving custodian asks the current custodian to send the assets. The money moves between the two institutions, by wire, check payable to the new custodian or an in-kind transfer of the securities themselves.

Because the owner never has access to the money, the IRS does not treat a transfer as a distribution. There is no tax, no withholding and no 60-day deadline, and the transfer does not count toward the one-rollover-per-year limit.

Transfers work between IRAs of the same type, such as traditional to traditional or Roth to Roth. The Series 65 Exam Preparation course at FRC covers transfers, rollovers and conversions together, so you can tell them apart instantly in exam scenarios.

How a 60-Day Rollover Works

In an indirect, or 60-day, rollover, the custodian pays the money to the account owner. The owner then has 60 days from the day of receipt to deposit the same amount into an IRA or eligible plan, and any amount not deposited in time becomes a taxable distribution.

Owners sometimes use this route deliberately, for example to access funds briefly. That is risky: if the money cannot be replaced within 60 days, the shortfall is taxed as ordinary income and, for owners under age 59½, usually faces a 10 percent additional tax as well.

A rollover can also be direct, when an employer plan sends money straight to an IRA. Despite the name, a direct rollover from a plan behaves much like a transfer, with no withholding and no 60-day risk.

Transfer, Direct Rollover and Indirect Rollover Compared

The One-Rollover-Per-Year Rule

An individual can make only one 60-day rollover from an IRA to an IRA in any 12-month period, no matter how many IRAs they own. The rule applies across all of the owner’s traditional, Roth, SEP and SIMPLE IRAs combined, so a rollover from one IRA blocks a second rollover from any other IRA for 12 months.

The 12-month period runs from the date the owner received the first distribution, not the calendar year. The IRS adopted this aggregate approach from 2015, after a Tax Court decision overturned the earlier view that the limit applied to each IRA separately.

Several moves do not count toward the limit. Trustee-to-trustee transfers, rollovers from employer plans to IRAs, rollovers from IRAs to employer plans and conversions from traditional to Roth IRAs are all outside the rule, which is one more reason the direct routes are almost always preferred.

Worked Example: Breaking the One-Per-Year Rule

A 52-year-old client in the 24 percent tax bracket takes $60,000 from IRA A in March and rolls it into IRA B within 60 days. In August, she takes $40,000 from IRA C and tries to roll it into IRA D, not knowing about the limit.

Step one: the August rollover is not allowed, so the $40,000 is a taxable distribution, costing $9,600 in federal income tax at 24 percent. Step two: because she is under 59½, the 10 percent additional tax adds $4,000, for a total of $13,600.

Step three: the $40,000 deposited into IRA D is now an excess contribution. Unless she withdraws it, with any earnings, by the tax filing deadline, a 6 percent excise tax of $2,400 applies for every year it stays in the account.

Had she used a trustee-to-trustee transfer for the second move, none of this would have happened. The transfer costs the same and is not limited.

Withholding: The Hidden Cost of an Indirect Rollover

When an employer plan pays an eligible rollover distribution to the participant, it must withhold 20 percent for federal income tax. A participant who wants to roll over the full amount must replace that 20 percent from other savings within 60 days and recover it later as a tax refund.

IRA distributions follow a different rule. The custodian withholds 10 percent by default, but the owner can choose a different rate or no withholding at all.

Worked example: an IRA owner takes $50,000 and accepts the default 10 percent withholding, receiving $45,000. To complete a full tax-free rollover, she must deposit $50,000 within 60 days, finding the missing $5,000 elsewhere; if she deposits only $45,000, the remaining $5,000 is taxable and may also face the 10 percent penalty. Our article on what a 401(k) is works through the same calculation for the 20 percent plan withholding.

Study Rollovers and Transfers With FRC

Rollover and transfer questions combine tax rules, deadlines and client judgment, and small differences in wording change the right answer. Our Series 65 course walks through every route money can take between plans and IRAs, with practice questions built around the traps examiners use.

Consider studying with FRC for every exam on your route. Explore our USA exam courses, from the SIE through the Series 7, Series 63 and Series 65.

To take advantage of the membership, explore FRC Professional Membership, which gives you a verified Digital Profile that shows employers your real-time course progress, together with the Video Resume. Current offers are on our membership deals page.

What Can and Cannot Be Rolled Over

Most distributions from IRAs and employer plans can be rolled over, but some cannot. Required minimum distributions cannot be rolled over, so an owner who must take one must take it before moving the rest of the account.

Hardship distributions from a 401(k), payments in a series of substantially equal periodic payments and corrective distributions of excess contributions are also ineligible. Plan loans treated as distributions are an exception: a loan offset caused by leaving the job can be rolled over until the tax filing deadline for that year.

The same property rule applies to rollovers: the owner must roll over the same property received. Someone who receives shares from an IRA cannot sell them and roll over the cash, and cannot substitute different shares.

Inherited IRAs: Transfers Only

A spouse who inherits an IRA has the most flexibility, including treating it as their own or rolling it into their own IRA. A non-spouse beneficiary, such as a child, cannot roll an inherited IRA over at all.

The only way for a non-spouse beneficiary to move an inherited IRA to another custodian is a trustee-to-trustee transfer into an inherited IRA titled in the deceased owner’s name for the benefit of the beneficiary. If the beneficiary takes a check instead, the whole amount becomes taxable and cannot be put back.

This rule catches families every year, often on very large accounts. An adviser who sees a non-spouse beneficiary asking for a distribution check should stop the process and arrange a direct transfer.

Rollovers Into and Out of Roth Accounts

A Roth IRA can be transferred or rolled over to another Roth IRA under the same rules as traditional accounts. A Roth 401(k) balance can be rolled into a Roth IRA, which removes it from plan rules and keeps it free of lifetime required distributions.

Moving money from a traditional IRA to a Roth IRA is a conversion, not a rollover in the tax sense. The converted amount is taxable in the year of conversion, but conversions do not count toward the one-rollover-per-year limit. Our comparison of traditional IRA vs Roth IRA explains when converting can make sense.

Missing the 60-Day Deadline

The IRS can waive the 60-day deadline in some cases. Owners can self-certify that they qualify for a waiver for specific reasons, such as an error by the financial institution, a misplaced check, serious illness, a death in the family or a natural disaster damaging the owner’s home, as long as the deposit is made as soon as practicable after the problem ends.

Self-certification is not a guarantee. The IRS can still review the claim on audit, and an owner who does not fit one of the listed reasons must ask the IRS for a private letter ruling, which involves a fee and takes time.

The safest planning step is to avoid the deadline altogether. A direct transfer or direct rollover removes the 60-day clock from the process entirely.

Advising Clients on Moving Retirement Money

A recommendation to move money from an employer plan to an IRA is regulated advice. The adviser must compare costs, investment options, services, creditor protection and withdrawal rules between the plan and the IRA, and meet Regulation Best Interest for broker-dealers or the fiduciary duty for investment advisers.

Money in an employer plan also keeps the protections described in our article on what ERISA is, including fiduciary oversight of the investment menu. Moving it to an IRA gives the client more investment choice but removes those protections, which the adviser should explain.

For moves between IRAs, the adviser’s role is mostly mechanical: arrange the transfer, confirm the account types match and keep the client from touching the money. That simple discipline prevents nearly every rollover error.

The Memory Aid

Remember “transfer is untouched, rollover is in hand”. If the client never touches the money, it is a transfer or direct rollover; if a check goes to the client, it is an indirect rollover with a 60-day clock.

For the limit, remember “one rollover, unlimited transfers”. The one-per-year rule applies only to 60-day IRA-to-IRA rollovers, counted across every IRA the person owns.

For withholding, remember “twenty from a plan, ten from an IRA”: 20 percent mandatory from a plan paid to the participant, 10 percent default, which can be waived, from an IRA.

Exam Traps to Avoid

The first trap is applying the one-per-year rule to transfers. Trustee-to-trustee transfers are unlimited.

The second trap is applying the limit to each IRA separately. Since 2015, it applies to all of an individual’s IRAs combined.

The third trap is assuming a non-spouse beneficiary can roll over an inherited IRA. Only a trustee-to-trustee transfer to an inherited IRA keeps the money tax-deferred. The fourth trap is forgetting that required minimum distributions can never be rolled over.

A Client Scenario

A 64-year-old client has three IRAs at different firms and a 401(k) from a former employer. He wants to combine everything at one firm, and his brother-in-law has suggested he simply withdraw each balance and deposit the checks into a new IRA.

The adviser explains that withdrawing each IRA by check would create three 60-day rollovers in a short period, and only the first would qualify. The other two would become taxable, and any deposit made from them would be an excess contribution.

The adviser instead arranges trustee-to-trustee transfers for the three IRAs and a direct rollover for the 401(k), after comparing the plan’s fees and features with the IRA. Before moving anything, the adviser confirms that no required minimum distribution is due, reviews the client’s goals and risk tolerance, and documents the suitability of the consolidated portfolio.

The Dictionary as a Video Library

The FRC dictionary is a study tool, not just a glossary. Every entry pairs a written explanation with deep-dive video, on-page quizzes and interactive flash cards, so you can read a concept, watch it explained and test yourself in one place.

Rules are covered in the same depth: open a rule such as Regulation Best Interest and you will find the full explanation alongside video walk-throughs of how it applies in practice. Use the FRC dictionary to open every term in this article as its own explanation, video and quiz.

Practice Questions to Test Yourself

Question one: A client completes a 60-day rollover from one IRA in February. In June, she wants to move a second IRA to a new custodian. What is the best method? A trustee-to-trustee transfer, which is not limited by the one-rollover-per-year rule.

Question two: A participant leaves his employer and takes an $80,000 401(k) distribution paid to himself. How much does he receive, and how much must he deposit within 60 days for a full tax-free rollover? He receives $64,000 after 20 percent withholding and must deposit the full $80,000.

Question three: A 30-year-old inherits her father’s IRA. Can she take a check and roll it into her own IRA within 60 days? No, a non-spouse beneficiary cannot roll over an inherited IRA; she must use a trustee-to-trustee transfer into an inherited IRA.

Question four: A 75-year-old must take a $12,000 required minimum distribution this year. Can he roll it into another IRA? No, required minimum distributions are not eligible for rollover.

Question five: Does converting a traditional IRA to a Roth IRA count toward the one-rollover-per-year limit? No, conversions are excluded from the limit, although the converted amount is taxable.

Turn Retirement Planning Knowledge Into Career Evidence

Rollovers are one of the main ways advisers win new client assets, so firms value advisers who handle them accurately and compliantly. FRC’s Digital Profile shows employers the courses you are actively studying and the progress you have earned through assessed learning, verified by FRC, and a QR code on your resume takes them straight to it.

The FRC Video Resume lets a hiring manager hear you before the interview. Explaining clearly why a transfer beats a 60-day rollover shows the precision that protects both clients and firms.

Candidates returning to the exam should note that the wait after a third failure drops from 180 days to 60 days for exam windows opened on or after January 4, 2027, as explained in our article on the Series 65 retake rule change.

Related Questions

Continue with What Is a 401(k)? for plan withdrawal rules, and What Is ERISA? for the protections that apply inside employer plans.

For the accounts most rollovers land in, read Traditional IRA vs Roth IRA, and for where workplace plans fit, see Defined Benefit vs Defined Contribution Plans.

Key Points to Retain

A trustee-to-trustee transfer moves IRA money directly between custodians with no tax, no withholding, no deadline and no annual limit. An indirect rollover pays the money to the owner, who has 60 days to redeposit it, and IRA-to-IRA rollovers are limited to one in any 12-month period across all of the owner’s IRAs.

Plan distributions paid to the participant face 20 percent mandatory withholding, while IRA distributions default to 10 percent. Required minimum distributions cannot be rolled over, non-spouse beneficiaries can move an inherited IRA only by direct transfer, and Roth conversions do not count toward the rollover limit.

For the exam’s structure and requirements, see the Series 65 dictionary entry, and for the role the exam leads to, read our guide to what an investment advisor representative is.