When a Mayer Brown tax partner moved money between his own IRAs in 2008, he was trying to use what every IRS publication said was a legal strategy. The Tax Court disagreed. By the time Alvan Bobrow's appeal was exhausted, he owed taxes, penalties, and interest — and every American with more than one IRA had lost a flexibility they did not even know they had.
If you have ever moved money from one retirement account to another, you have brushed up against one of the most misunderstood rules in the tax code: the 60-day rollover. Get it right and you have a powerful tool to consolidate accounts, change custodians, or even use IRA money as a very short-term bridge loan. Get it wrong and you can convert a tax-deferred retirement balance into a fully taxable distribution, complete with a 10% early withdrawal penalty if you are under 59½. There is no court of mercy. The IRS does not care that you meant well.
Here is the rule that trips people up the most, why it became so dangerous in 2015, and the workaround that virtually eliminates the risk if you know to ask for it.
What a Rollover Actually Is (and Why People Confuse It With a Transfer)
In ordinary speech, people use "rollover" and "transfer" interchangeably. The tax code does not. The distinction is the entire game.
A 60-day rollover, sometimes called an indirect rollover, happens when your IRA custodian sends the money to you personally. You receive a check made out in your name or a wire to your checking account. The clock starts the day you receive the funds, and you have 60 calendar days to deposit the full amount into another IRA (or back into the same one). If you do, the distribution is treated as if it never happened for tax purposes.
A trustee-to-trustee transfer, sometimes called a direct rollover or a direct transfer, happens when the funds move from one custodian to another without ever passing through your hands. The check is made payable to the receiving institution "for the benefit of" you. Some people call it a "FBO check." The money never lands in a personal bank account, and you never have legal possession of it.
Both achieve the same end result on paper: money moves from one retirement account to another with no current tax. But the IRS treats them as fundamentally different transactions, and the consequences of that difference are huge.
The Old Rule, the Bobrow Strategy, and the Tax Court Bomb
For decades, IRS Publication 590, the proposed regulations, and a wide range of authoritative-looking guidance said the same thing: the limit of one 60-day rollover per 12 months applies on a per-IRA basis. If you had three IRAs, you could do three rollovers in the same year, as long as each individual account only sourced one of them.
That guidance opened a door. Sophisticated taxpayers, particularly those with multiple accounts, used the 60-day window as a series of overlapping short-term loans. Take a distribution from IRA A on January 1, replace it 59 days later with money pulled from IRA B, then replace IRA B's distribution from IRA C, and so on. The result was that someone with enough accounts could keep retirement money rotating through their personal checkbook for many months at a stretch — interest-free, tax-free, and (apparently) legal.
Alvan Bobrow was a partner at Mayer Brown and chair of the firm's New York tax practice. In 2008, he and his wife used this exact strategy. He took a $65,000 distribution from one IRA, replaced it within 60 days using funds from another account, and engaged in similar transactions involving his wife's accounts. On the basis of the IRS's own published guidance, every step appeared compliant.
In Bobrow v. Commissioner, T.C. Memo. 2014-21, the U.S. Tax Court disagreed. Reading the underlying statute, Internal Revenue Code § 408(d)(3)(B), the court held that the once-per-year limit applied to the taxpayer, not to each IRA. All of an individual's traditional and Roth IRAs are aggregated. When Bobrow asked the court to reconsider, arguing that he had relied in good faith on Publication 590, Judge Joseph W. Nega delivered a line that financial advisors still quote today: taxpayers who rely on IRS publications do so "at their own peril."
The IRS accepted the decision in Announcement 2014-15 and Announcement 2014-32. The new aggregate rule took effect for distributions on or after January 1, 2015. Publication 590 was rewritten. The world changed.
The Rule as It Stands Today
You may make only one 60-day IRA-to-IRA rollover in any rolling 12-month period, regardless of how many IRAs you own. The aggregation pool includes:
- Traditional IRAs
- Roth IRAs
- SEP-IRAs
- SIMPLE IRAs
If you own ten IRAs across five custodians, you still get exactly one indirect rollover per 12 months across the entire collection.
A few important clarifications:
- The 12-month period is measured from the date of the distribution that started the prior rollover, not from January 1 of each calendar year. Treat it as a rolling window.
- The rule applies whether you complete the rollover in 5 days or 60. Speed of completion has no effect.
- Conversions from a traditional IRA to a Roth IRA are not subject to the once-per-year cap. The IRS treats Roth conversions as a separate animal.
- Rollovers from a 401(k), 403(b), or other employer plan into an IRA, or from an IRA back into an employer plan, are also outside the aggregation rule. The cap is specifically IRA-to-IRA.
That last point is doing a lot of work for many savers. If you are leaving a job and moving an old 401(k) into a new IRA, that is not the kind of rollover the once-per-year rule limits.
The Consequences of Getting It Wrong
When a second indirect rollover happens inside the 12-month window, the IRS does not simply unwind it. Two things happen, and both are painful.
First, the second distribution loses its rollover treatment entirely. The whole amount becomes a taxable distribution in the year it was received. If you took $50,000 out of an IRA, you owe ordinary income tax on $50,000. If you are under 59½ and no other exception applies, you also owe a 10% early withdrawal penalty — another $5,000 in this example.
Second, because the money was nonetheless redeposited into an IRA, the redeposit is now an excess contribution. Excess contributions face a 6% excise tax per year for every year the excess remains in the account. Unless you withdraw the excess (plus earnings) by the corrective deadline, the 6% bites again every December 31.
There is no de minimis rule. There is no first-offense forgiveness from the statute itself. The Bobrows, with the benefit of expert tax counsel and a published IRS position on their side, still lost. Ordinary taxpayers should expect even less sympathy.
The Workaround Hidden in Plain Sight
The most striking thing about the once-per-year rule is what it does not apply to. Trustee-to-trustee transfers are completely outside the aggregation cap. You can do an unlimited number of them across as many IRAs as you like, in the same calendar week if you want, with no tax consequence whatsoever.
This is not a loophole. It is the IRS's preferred method, and any decent custodian will help you set it up. The catch is that you have to ask for it specifically. If you call your custodian and say "I want to move money from this IRA to that one," many will default to mailing you a check. The check will be in your name. The clock will start. You will not realize you are now standing on the edge of a cliff.
The right script is short:
"I would like to do a trustee-to-trustee transfer from my IRA at [old custodian] to my IRA at [new custodian]. Please make any check payable to [new custodian] FBO [your name and new account number]. Do not send it to me personally."
If the receiving custodian initiates the request, that is usually even cleaner. They will pull the funds directly. Many large brokerages now use the ACATS system for in-kind transfers between IRAs at different houses, which moves both cash and securities without any physical check.
The same logic applies to direct rollovers from a 401(k) into an IRA. Ask for the check to be made out to the new IRA custodian FBO you, not to you personally. If your employer's plan administrator hands you a check made out in your name, you have just started a 60-day clock you almost certainly do not need.
When the 60-Day Clock Becomes a Trap
There is a less obvious risk in indirect rollovers from employer plans: mandatory withholding. When a 401(k) plan sends an eligible rollover distribution to you personally, the plan is required by law to withhold 20% for federal income tax. If you receive an "$80,000 distribution" intended for rollover, the check is actually for $64,000.
To complete a full rollover and avoid any tax consequence, you have to come up with the missing $16,000 from outside funds and deposit the full $80,000 into the new IRA within 60 days. Most people do not have a spare $16,000 sitting around. If you only deposit the $64,000 you received, the missing $16,000 is treated as a taxable distribution. You can recover the withheld amount later as part of your tax refund, but the $16,000 still gets taxed as ordinary income in the year of distribution, plus the 10% early withdrawal penalty if applicable.
A direct trustee-to-trustee transfer dodges this withholding entirely. Another reason the indirect route is rarely worth taking.
The Self-Certification Safety Net (For Mistakes That Are Not About the Rule)
If you blow the 60-day deadline for a genuinely sympathetic reason — not because you tried to do a second rollover within the year — there is a procedure that can save you. Revenue Procedure 2020-46 lets you self-certify to your IRA custodian that the late rollover was caused by one of an enumerated list of hardships. The list includes:
- An error by the financial institution
- The check was misplaced and never cashed
- Serious illness or incapacitation of you or a family member
- Death in the family
- Postal error
- Federally declared disaster
- Severe damage to your principal residence
- Distribution deposited into an account you mistakenly thought was an eligible retirement plan
- A levy on the account, with proceeds later returned
- Delay by the party making the distribution in providing required information
- Distribution made to a state unclaimed property fund
You sign a model letter (included in the Revenue Procedure), give it to the receiving custodian, and they can accept the late rollover. Two important caveats: this only saves you from the 60-day failure. It does not save you if you broke the once-per-year rule. And if the IRS later audits and disagrees with your certification, the waiver is reversed retroactively, with tax, interest, and penalties added on. Notably absent from the list of acceptable excuses: "my tax advisor told me it was fine." Bad advice is not a hardship the IRS recognizes.
Practical Checklist Before You Move IRA Money
- Default to trustee-to-trustee. Always start the conversation with your custodian by asking for a direct transfer. Only deviate if you have a specific, time-sensitive reason for an indirect rollover.
- Use the receiving institution to pull the funds when possible. They have an interest in making the transfer work and will usually handle paperwork.
- Confirm in writing how the check is payable. "Payable to New Custodian FBO Your Name" is what you want. "Payable to Your Name" is what you do not want.
- Track every indirect rollover with the date of receipt. Keep that record alongside your tax return. If you do an indirect rollover in November, you cannot start another one until the following November at the earliest.
- Do not chain rollovers across multiple IRAs. The strategy that broke Bobrow's case is unambiguously illegal now.
- Distinguish IRA-to-IRA from plan-to-IRA. A 401(k)-to-IRA rollover is not in the aggregation pool. You can do one of those and an IRA-to-IRA rollover in the same year.
- If something goes wrong and there is a real hardship, look up Revenue Procedure 2020-46 before assuming all is lost. Have a CPA review the certification before submitting.
How Better Records Prevent Catastrophe
A surprising number of these failures begin with a paperwork lapse. A rollover gets started, someone misfiles a confirmation, and twelve months later the taxpayer has no clear record of when funds left an account and when they were redeposited. By the time an IRS notice arrives, reconstructing the timeline from cancelled checks and brokerage statements is painful.
The taxpayers least likely to have rollover problems are the ones who treat their personal finances like a small business: every account reconciled, every transaction categorized, every transfer logged with both ends documented. A simple, durable record of "money out of IRA A on March 14, $25,000" and "money into IRA B on April 7, $25,000" is what you want to put in front of an auditor. Reconstructed three years later from memory, it is what you do not.
Keep Your Financial Records Audit-Ready From Day One
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