By Henny Willis. Reviewed November 5, 2026. These are summaries of federal rules, not personalized tax advice. Confirm plan-specific instructions with the plan administrator and your own tax professional.
Short Answer
A direct rollover is usually the cleaner tax path.
When an employer plan sends an eligible rollover distribution directly to the receiving IRA or plan, mandatory 20% withholding does not apply. If the plan pays the taxable eligible rollover distribution to you instead, it generally must withhold 20%, and you generally have 60 calendar days from receipt to complete the rollover.
Direct vs indirect rollover: the 20% rule
In a direct rollover, the old plan sends the money to the receiving custodian or plan. In an indirect rollover, the plan pays you. Mandatory 20% federal withholding generally applies to the taxable portion of an eligible rollover distribution paid to you even when you intend to roll it over later.
| Example | Amount |
|---|---|
| Pre-tax employer-plan amount requested | $100,000 |
| Mandatory federal withholding at 20% | $20,000 |
| Check you receive | $80,000 |
| Amount needed for a full rollover | $100,000 — including $20,000 replaced from other funds |
If you roll over only the $80,000 you received, the missing $20,000 is generally treated as a distribution. The taxable portion is included in income and can also face the 10% additional tax if you are under 59½ and no exception applies. The amount withheld is claimed as federal income tax withheld on your return.
Direct vs indirect rollover · Rollover withholding · Check made out to you
The 60-day rule
When a rollover-eligible distribution is paid to you, you generally have 60 calendar days from receipt to contribute it to another eligible retirement plan or IRA. Weekends and holidays count. The IRS has waiver and self-certification procedures for limited circumstances, but relief is not automatic.
Read the full 60-day rollover rule guide.
The one-rollover-per-12-months rule
The once-per-12-months limit applies to IRA-to-IRA 60-day rollovers across your IRAs. It does not apply to trustee-to-trustee IRA transfers, plan-to-IRA rollovers, IRA-to-plan rollovers, plan-to-plan rollovers, or traditional-IRA-to-Roth conversions.
Form 1099-R and Form 5498
| Transaction | Typical reporting |
|---|---|
| IRA-to-IRA trustee-to-trustee transfer | Generally no Form 1099-R and not reported as a rollover contribution in Form 5498 box 2 |
| Employer-plan direct rollover to an IRA | Form 1099-R, generally Code G; receiving IRA reports the rollover contribution on Form 5498 |
| Designated Roth plan direct rollover to a Roth IRA | Form 1099-R, Code H; receiving Roth IRA reports the rollover contribution on Form 5498 |
| 60-day rollover | Form 1099-R from the distributing institution and Form 5498 from the receiving IRA |
A Form 1099-R does not automatically mean the rollover is taxable. Keep the 1099-R, Form 5498, rollover confirmation, and account statements together for tax season.
Roth conversions
Moving previously untaxed pre-tax retirement money to a Roth IRA generally creates taxable income in the year of the conversion. A direct rollover from a designated Roth 401(k) account to a Roth IRA generally preserves Roth treatment and is reported with Code H.
If a traditional IRA contains nondeductible basis, Form 8606 is used to determine the taxable and nontaxable portions. The calculation looks across the value of all traditional IRAs for the year-end pro-rata calculation, so a conversion is not treated as simply selecting only the after-tax dollars.
What you cannot roll over — and the 10% additional tax
- RMDs and hardship distributions: these are not eligible rollover distributions. Final regulations set the applicable RMD age at 73 for people born in 1951 through 1958 and 75 for people born in 1960 or later. For 1959 births, final regulations reserve the issue; proposed regulations would use age 73.
- Early distributions: taxable amounts distributed before age 59½ can face a 10% additional tax unless an exception applies.
- Rule of 55: the separation-from-service exception can apply to distributions from a qualified employer plan when separation occurs during or after the calendar year you reach age 55. That specific exception does not apply to IRAs, so rolling the money to an IRA can remove that exception for later withdrawals.
Common rollover tax mistakes
- Taking a check payable to you when a direct rollover was available.
- Missing the 60-day deadline.
- Failing to replace the 20% withheld from an employer-plan distribution paid to you.
- Making a second IRA-to-IRA 60-day rollover within the same 12-month period.
- Trying to roll over an RMD or hardship distribution.
- Moving an employer plan to an IRA without considering the age-55 separation-from-service exception.
- Converting pre-tax money to Roth without planning for the tax bill or IRA basis.
- Discarding the Form 1099-R, Form 5498, check image, or rollover confirmation.
Records to keep
Keep the plan’s rollover request, distribution statement, any check image, transfer confirmation, Form 1099-R, Form 5498, and records of nondeductible IRA basis if applicable. Use the free rollover checklist to organize the process.
IRA contribution limits for 2026
For 2026, the IRA contribution limit is $7,500, plus a $1,100 catch-up contribution for people age 50 or older, for a total of $8,600. Rollovers do not count against that annual IRA contribution limit. As of November 5, 2026, the IRS annual-limit pages still list 2026 as the latest retirement-plan COLA year; recheck when the IRS publishes the 2027 limits.
Primary IRS sources
- Topic 413 — rollovers and 20% withholding
- Rollovers of retirement plan and IRA distributions
- 2026 Instructions for Forms 1099-R and 5498
- Topic 558 — additional tax and employer-plan exceptions
- Form 8606 instructions — nondeductible IRA basis and Roth conversions
- 2024 RMD final and proposed regulations
- IRA contribution limits