The once-per-year IRA rollover rule sounds pretty easy to understand. You may only do one IRA-to-IRA (or Roth IRA-to-Roth IRA rollover) per year (365 days). However, there are many ways it can go wrong. Consider the following two scenarios. One involves multiple distributions and the other involves multiple rollover deposits. One is ok and the other is not.

One Distribution and Multiple Rollover Deposits – That’s Ok!

If you take one distribution from your IRA, you may split the funds and roll them over to multiple IRAs. The rollovers could be done on different days and that would not be a problem. This works for purposes of the once-per-year rollover rule because only one distribution is received even though there is more than one rollover deposit.

Example: Sophie receives a $100,000 distribution from her IRA on June 15. On June 20, Sophie rolls over $75,000 to her IRA. On June 25, she decides to roll over the remaining $25,000 to another IRA. This is not a violation of the once-per year rollover rule because Sophie received only one distribution even though she did two rollovers on two different dates.

Multiple Distributions on Different Days and One Rollover Deposit – That’s NOT Ok!

It is acceptable under the once-per-year rollover rule to take a distribution on one day and roll it over on different days. Is the opposite scenario also allowed? Can you take multiple distributions on different days and deposit them at one time as one rollover? The answer would be no. Even if all the distributions were taken from the same IRA this would still not be allowed. The reason is that only one distribution is eligible for rollover within a 60-day period.

Example: James takes a $2,000 distribution from his IRA on January 10 and another $30,000 distribution on January 12. His plan to roll over both on the same day to a new IRA. Unfortunately for James only one of his IRA distribution is eligible for rollover. This is because the once-per year rule limits him to rolling over only one distribution within 365-day period.

Best Advice – Do Direct Transfers

Knowing all the details of how the once-per-year rule works and how to avoid mistakes is essential! Breaking the rule can potentially lead to negative tax consequences and even the loss of your hard-earned IRA savings.

The best advice is to avoid 60-day rollovers and the complications of the once-per-year rollover rule. You can do this by moving your IRA funds as trustee-to-trustee transfers instead. With a transfer, the funds go directly from one IRA custodian to another. Transfers are not subject to the once-per year rule so you can move your IRA funds this way as many times as you like during the same year.