Consequences of ineligible IRA rollovers

Ineligible rollovers can cause significant negative consequences to your retirement savings.  Please consider the following:

  • Generally, IRA distribution amounts that are indirectly rolled over are nontaxable because they are ‘restored’ to your IRA account within the 60 day window. However, if for example you miss the 60 day cutoff, the amount will no longer be rollover eligible (ineligible rollover) and could also then be taxable to you. 
  • Ineligible rollovers become taxable income to the account holder, and may be subject to a 10% additional tax if the account owner is below aged 50 ½.
  • Ineligible rollovers also then lose the ability to  continue to accrue tax-deferred earnings (or tax-free earnings in the case of a Roth IRA) on the amount, which could negatively impact your retirement savings.
  • If a rollover is ineligible and you fail to remove the ineligible rollover amount from your IRA within a certain timeframe, you could be double-taxed on the amount. In addition, you may owe the IRS a 6% excise tax on the amount for every year it remains in your IRA. These penalties are steep so it is important to understand the operations of your IRA.
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