Can I Do an IRA Rollover Before Age 59 1/2?

Find out if you can do an indirect rollover before age 59 1/2 and what rules apply when transferring funds from employer-sponsored retirement plans.

Can I Do an IRA Rollover Before Age 59 1/2?

There is no age restriction when it comes to rolling over or transferring an IRA. When you move funds from a business-sponsored retirement plan, such as a 401(k) or 403(b), directly to an IRA, it is referred to as a reinvestment. This can be done at any age. If you are at least 59 and a half years old and your Roth IRA has been open for at least five years, you can withdraw money without incurring taxes or penalties.

If you have a Roth 401(k) or 403(b), you can transfer your money to a Roth IRA tax-free. If you have a traditional 401(k) or 403(b), you can transfer your money to a Roth IRA. However, this would be considered a conversion to Roth, so you would need to declare the money as income when filing your tax return and pay ordinary income tax on the amount. Do not use Form 8606, Non-Deductible IRAs (PDFPDF, Non-Deductible IRAs) to declare non-deductible contributions to a Roth IRA.

However, you must use Form 8606 to declare the amounts you converted from a traditional IRA, SEP, or simple IRA to a Roth IRA. You have 60 days from the date you receive the distribution of an IRA or retirement plan to transfer it to another plan or IRA. Additionally, keep in mind that for any 12-month period, you are only allowed to reinvest one indirect IRA (even if you have multiple IRAs). You can divide your distribution however you want; for example, sending all the amounts to an IRA or sending some of your pre-tax amounts to a Roth IRA.

Investing in unconventional assets such as public limited companies and real estate through an IRA may risk disqualifying the account due to prohibited transaction rules that prohibit self-dealing. You can also receive a check issued in the name of the new 401(k) or IRA account and forward it to your new employer's plan administrator or the financial institution that has custody of your IRA. Gold and other ingots are considered collectibles under IRA statutes and the law discourages having collectibles in IRAs. The 60-day reinvestment rule applies primarily to indirect reinvestments which the Internal Revenue Service (IRS) actually refers to as 60-day rollovers.

The only divorce-related exception for IRAs is if you transfer your IRA participation to a spouse or former spouse and the transfer is made under an instrument of divorce or separation (see section 408(d)(2) of the IRC). In general, a qualified charitable distribution is a distribution that is otherwise taxable from an IRA (other than an ongoing SEP or SIMPLE IRA) owned by someone 70 and a half years old or older that is paid directly from the IRA to a qualifying charity. The only difference is that money from an accumulated IRA can later be transferred to an employer-sponsored retirement plan if the plan allows it. You then have 60 days from the date you receive the funds to complete a reinvestment by depositing them into a Roth IRA.

You can transfer your IRA to a qualified retirement plan (for example, a 401(k)) provided that the retirement plan has language allowing for this type of reinvestment. A reinvestment occurs when assets from an employer-sponsored retirement plan such as a 401(k) or 403(b) are transferred to an IRA. You can transfer any money from an IRA that you saved outside of your employer-sponsored plan to a Vanguard IRA through an asset transfer.

Hilary Oullette
Hilary Oullette

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