IRA Transfers vs. Rollovers: The Rules That Can Cost You

Investors move their IRAs for many reasons. They might want to change financial institutions, work with a new advisor, or consolidate multiple IRAs. Whatever the reason, care must be taken when deciding how to move the IRA to preserve the tax-deferred status. While many investors assume they can move IRA assets as often as they wish, the rules depend on the method used. For example, an IRA-to-IRA rollover may be done only once during a 12-month period, while transfers are not subject to that limitation.

If you are planning to move your IRA, understanding the difference between a transfer and a rollover is key to avoiding costly mistakes.

IRA Transfer vs. Rollover

With a transfer, the movement of assets is initiated by the receiving financial institution. With authorization from the IRA owner, the receiving financial institution sends instructions to the delivering institution and includes confirmation that the assets will be deposited into the same type of IRA as a nonreportable transaction.

Because the assets move directly between financial institutions as a transfer, the transaction is not reported to the IRS and is not reported on the IRA owner’s tax return.

A transfer may be made between two traditional IRAs (which, for this purpose, includes SEP IRAs and Simple IRAs) and between two Roth IRAs. However, a Simple IRA cannot be transferred to a traditional IRA (or vice versa) before the Simple IRA has satisfied the two-year period. This two-year period starts when the first Simple IRA contribution is made to the Simple IRA. During that period, transfers and rollovers are limited between Simple IRAs.

With an IRA-to-IRA rollover, the IRA owner takes a distribution and redeposits the amount into the same distributing IRA or another IRA. Generally, the rollover must be completed within 60 days after the IRA owner receives the distribution. See “How to Get a Waiver of the 60-Day Deadline for Your IRA Rollover.”

The distribution side is reported to the IRS and the IRA owner on Form 1099-R, and the rollover contribution is reported on Form 5498. Both transactions must also be properly reflected on the taxpayer’s tax return.

The One-Per-12-Month IRA Rollover Rule

There is no limit on the number of transfers that may be made between IRAs at any time. On the other hand, IRA-to-IRA rollovers are limited to one rollover during a 12-month period.

For example, if an individual takes a distribution from a traditional IRA and rolls it over to the same or another traditional IRA, that individual cannot perform another IRA-to-IRA rollover during the next 12 months. The rule applies on a per-individual level, which means all of an individual’s IRAs are aggregated for purposes of the one-per-12-month limitation.

Example 1: Mary takes a distribution from traditional IRA number one in May 2026 and rolls it over to traditional IRA number two in June 2026. During the 12 months after Mary receives the distribution, she cannot perform another IRA-to-IRA rollover for any of her IRAs.

The restriction applies across IRA types, which means that if Mary completes a traditional IRA-to-Traditional IRA rollover, she cannot complete a Roth IRA-to-Roth IRA rollover during that same 12-month period.

Example 2: Lupita takes a $25,000 distribution from her traditional IRA in August 2026 and rolls the amount over to another traditional IRA within 60 days.

Six months later, Lupita takes a $10,000 distribution from her Roth IRA. She plans to deposit the amount into another Roth IRA within 60 days. Unfortunately, that second rollover is not permitted because the one-per-12-month rollover rule applies across all of Lupita’s IRAs. Therefore, because she already completed a traditional IRA-to-traditional IRA rollover, she cannot complete a Roth IRA-to-Roth IRA rollover until the 12-month period that began when she received her August distribution has expired.

Had Lupita used the transfer method instead of a rollover for the traditional IRA transaction, the one-per-12-month limitation would not have applied.

The Rule Does Not Apply to Employer Plan Rollovers and Roth Conversions

The one-per-12-month rollover limitation does not apply to rollovers to or from employer plans, nor does it apply to Roth conversions. These exceptions can provide a solution when an IRA owner discovers that a second IRA-to-IRA rollover would violate the one-per-12-month rule.

Example: Jack takes a distribution from traditional IRA number one and successfully rolls it over to traditional IRA number two. A few months later, Jack takes another distribution from traditional IRA number two and plans to roll it over to traditional IRA number three. Before doing so, he learns that the second rollover would violate the one-per-12-month IRA rollover rule.

Fortunately, Jack participates in a 401(k) plan that accepts rollover contributions from traditional IRAs.

Instead of rolling the funds to another IRA, Jack rolls the distribution to his 401(k) account. Because rollovers from IRAs to employer plans are not subject to the one-per-12-month limitation, the rollover is valid.

Caution: The amount rolled over from the IRA to the 401(k) cannot include aftertax amounts.

If Jack does not have access to an employer plan, another option would be to roll the distribution to a Roth IRA. Such a transaction would be treated as a Roth conversion and, therefore, would not be subject to the one-per-12-month rollover limitation.

Of course, a Roth conversion results in taxable income. While that may not have been Jack’s original objective, it would allow the earnings to continue growing tax-deferred in a Roth IRA, where future qualified distributions would be tax-free. See “Is Your Roth IRA Distribution Taxable?”

How to Avoid the IRA-to-IRA Problem

Whenever possible, use the transfer method rather than the rollover method when moving assets between your IRAs. Transfers avoid the 60-day deadline, are not reported to the IRS, and are not subject to the one-per-12-month rollover rule.

There are instances when a rollover may be necessary. For example, an IRA owner might need temporary access to the funds and intend to redeposit the amount within 60 days. In such cases, care must be taken to avoid violating the one-per-12-month IRA-to-IRA rollover limitation. Such a mistake can convert what was intended to be a tax-free movement of IRA assets into a taxable distribution and an ineligible rollover amount.

Before initiating a rollover, consult with your financial or tax advisor to determine whether the transaction is eligible for rollover treatment and whether another option, such as a transfer, would be more suitable.