OVERVIEW

  • The 60 day rollover is another name for an indirect rollover. When executing your rollover, they will send you the money first rather than sending it directly to your new plan provider. You have 60 days to deposit the money in full to your new retirement account.
  • You’re allowed to use the money however you like during the 60 day period, as long as you can make the full deposit before the deadline.
  • Your old plan provider will withhold 20% of the rollover funds for a 401k and 10% for an IRA. You must come up with the withheld amount from other sources in order to make the full deposit.
  • If you successfully deposit the money in full before the 60 day deadline, the IRS will return the withheld amount as a tax credit the year after your rollover was done.
  • If you miss the deadline, the rollover will get treated as a distribution and gets taxed if the funds are from a traditional retirement plan. Roth accounts are not taxed for withdrawals. If you’re under the age of 59½, you’ll have to pay an early distribution penalty of 10%.
  • There are no taxes or penalties if you deposit the money in full before the deadline.

What is a 60 day rollover?

A 60 day rollover is another name for an indirect rollover. When you’re rolling over funds from one retirement plan to another, you get the option to choose between a direct rollover and an indirect rollover. 

  • In a direct rollover, you never touch the money. The funds get sent directly from your old plan provider to your new plan provider. 
  • In an indirect rollover, the money is sent to you first and you’re given 60 days to deposit the money into your new plan in full. What you do with the money during the 60 day period is entirely up to you, as long as you’re able to deposit the full amount before the deadline. 

Because of the 60-day period, an indirect rollover is also known as a 60-day rollover.

How does a 60 day rollover work?

When you request a 60-day rollover from a retirement account, your old plan provider will send you the funds by direct deposit to your personal bank account, or by writing you a check in your name. For context, if you request a direct rollover, your old plan provider will write the check in the name of your new plan provider.

A 60 day rollover is almost like a short-term loan. There’s no rule that you cannot use the money once it’s sent to you. You’re allowed to cash the check and use the funds however you like, as long as you’re able to deposit the full amount into your new plan before the 60 day deadline.

Also read: Direct vs Indirect Rollovers

Funds get withheld in a 60-day rollover

With a 60 day rollover, you don’t get sent all of the funds that you’re rolling over. Your old plan provider will withhold 20% of the funds for a 401k rollover and 10% of the funds for an IRA rollover. It’s up to you to come up with the withheld amount on your own from other sources, in order to deposit the amount in full by the deadline.

For example, if you request a $10,000 60 day rollover, your old plan provider will withhold $2,000 (20%) if rolling over from a 401k and $1,000 (10%) if you’re rolling over from an IRA. You’ll receive the remaining $8,000 or $9,000 into your personal account and you must come up with the withheld amount on your own.

If you successfully deposit the full amount by the 60-day due date, the IRS will give you back the withheld amount in the form of tax credit the year after the rollover took place.

If you’re late, the withheld money will be used to pay penalties.

Penalties, taxes, and fees for a 60 day rollover

As long as you deposit the full amount into your new retirement plan before the 60 day deadline, there are no penalties or taxes associated with a 60 day rollover.

However, if you miss the deadline, the IRS treats your rollover as a distribution. If you’re under the age of 59½, you’ll have to pay early distribution penalties of 10% plus income taxes on the amount withdrawn.

To avoid taxes and penalties, make sure that the money is deposited into your account before the deadline. Mailing a check or initiating a deposit does not count. The money must be in your new retirement account by the 60 day deadline in order to avoid any taxes and penalties.

Are there any fees for a 60 day rollover?

Typically, there are no fees for a 60 day rollover. Some plan administrators will charge a small fee for executing the rollover.

Can I use the money from a 60 day rollover?

Yes. Once your old plan provider sends you the money, you’re free to use it however you wish. This makes it a viable option as a short-term loan as long as you won’t have trouble depositing the full amount into your new plan.

With a 60 day rollover, there are no taxes or penalties as long as you successfully deposit the money in full to your new plan before 60 days. In this sense, it’s like a short-term loan without any interest to pay.

401k and solo 401k have a loan option where you can borrow up to 50% of your account’s value up to a maximum of $50,000. However, not all 401k plan providers enable the option for its participants. A 401k loan gives you five years to repay the money, so if you’re using the 60 day rollover for a 401k mainly for the purposes of a loan, check if your 401k plan offers any sort of loan option.

An IRA doesn’t have any loan options.

What retirement accounts are eligible for a 60 day rollover?

Any retirement plan can execute a 60 day rollover.

You can do a 60 day rollover for a…

  • Traditional IRA
  • Roth IRA
  • 401k
  • Solo 401k
  • SEP IRA
  • SIMPLE IRA
  • 403b

A 401k may not be able to be rollover if you’re still employed at the company

Most 401k plans do not offer the option to rollover your 401k funds while you’re still employed at the company. You can only do a rollover when you depart your employer.

How many 60 day rollovers can I do per year?

You can only do a 60 day rollover once every 12 months. Direct rollovers and transfers can be done an unlimited number of times.

Also read: Transfer vs Rollover Differences

How to report a 60 day rollover

If you successfully deposit the full amount into your retirement plan before the 60 day deadline, your plan administrator will send you Form 1099-R to report the rollover. In box 13 of the form, you’ll see the date that the money was withdrawn from your old retirement plan. This is the start date of your 60 day deadline. The deposit date in 1099-R is the date the funds made it into your new retirement account.

  • If you deposited the withdrawn amount but not the withheld amount, the amount that you failed to deposit will be treated as a distribution. If you’re under the age of 59½, you’ll have to pay income taxes and a 10% penalty on that amount.
  • If you’re over the age of 59½, distributions from a traditional retirement account will be taxed as regular income but you won’t have to pay the 10% early distribution penalty.
  • If you’re over the age of 59½, distributions from a Roth retirement account will be tax-free and you won’t have to pay the 10% early distribution penalty. However, Roth accounts also have a 5 year rule in order to count as a qualified distribution. In addition to being over 59½, at least five years must have passed since you made your first contribution to your Roth account.

60 day rollover important rules to remember

A summary of the 60 day rollover rules that you need to remember.

  • Your old plan provider will send you the funds rather than sending it directly to your new plan provider.
  • You have 60 days to deposit the money in full to your new retirement plan.
  • Your old plan provider is required to withhold 20% of the funds for a 401k and 10% of the funds for an IRA. You must come up with the withheld amount on your own from other sources in order to deposit the full amount before the deadline.
  • If you successfully deposit the full amount, the withheld amount will get returned to you as a tax credit, the year after the rollover was performed.
  • As long as you return the money in full before the 60 day deadline, there are no taxes or penalties.
  • If you miss the deadline, it will get treated as a withdrawal. If you’re under the age of 59½, you will be hit with a 10% early distribution penalty.