Your Roth IRA Retirement Plan
return to homepage

Roth IRA Rollover Rules

What are the Roth IRA rollover rules?

When can you perform a rollover?

And how long do you have to do it?

You need to know every iota of the law if you plan to perform a Roth IRA rollover, because if you perform one incorrectly, you face the prospect of unforeseen tax bills, possible penalties, and even years of pain, frustration, and inconvenience.

So if you wish to perform a Roth IRA rollover, you need to do each of the following:

  • Meet the rollover eligibility requirements
  • Have a previously open/established Roth IRA account
  • Have adjustable gross income (AGI) within the IRS limits
  • Rollover the funds within the 60 day window
  • Pay the applicable taxes (if necessary)

Once you understand the Roth IRA rules for each of these topics, then you've successfully laid the groundwork for your Roth IRA rollover.

So let's examine each rule on an individual basis.

The Roth IRA Rollover Rules

Roth IRA Rollover Eligibility Rules

Before you can perform a rollover, you need to make sure you're eligible.

Under the Roth IRA rollover rules, you're ineligible to perform a Roth IRA rollover if you inherited the account you're rolling over from someone other than your spouse.

In such cases, inherited accounts can NOT be rolled over in your Roth IRA.

For instance, let's say you're 75 years old and your Traditional IRA has a total net value of $200,000. You and your spouse die in a car crash, and your daughter (an only child) inherits your entire estate.

Can your daughter rollover your Traditional IRA into her Roth IRA?


Because under the Roth IRA rollover rules, you're ineligible to perform a Roth rollover with an inherited account from someone other than your spouse.

But what if only you die in the car crash, and your spouse lives?

In that case, your spouse can elect to treat your Traditional IRA as her own and roll it over into a Roth IRA.

Previously Existing Roth IRA Account

Of course, before you can perform a Roth IRA rollover, you need to have an account to receive the rollover funds.

As a result, the Roth IRA rollover rules require you to have a previously existing Roth IRA account before you can perform a rollover.

For instance, let's say you have a Traditional IRA with Charles Schwab, and you want to perform a rollover to a Roth IRA with eTrade.

In order to do so, you need to have established open account with eTrade before you initiate the rollover. Otherwise, the funds have no where to go.

However, you can get around this provision without performing a rollover, but another method Roth IRA conversion - "same trustee transfer."

For example, say you have your Traditional IRA with Charles Schwab, you want to convert to a Roth IRA.

If you perform your conversion with the same broker (in this case, Charles Schwab), then you can perform a same trustee transfer, which simply redesignates your existing account from "Traditional IRA" to "Roth IRA."

Of course, you'll still owe any applicable taxes just as if you had performed a rollover from one account to another, but it can be a method for simplifying the process.

IRS Limits On Adjustable Gross Income (AGI)

In past years, the IRS imposed a $100,000 income limit on Roth IRA conversions, meaning if your adjustable gross income (AGI) exceeded $100,000, you were prohibited from performing a rollover.

But under the new Roth IRA rollover rules, anyone can perform a Roth IRA conversion regardless of income.

This rule change has opened the door for high income earners to make Roth IRA contributions, in some cases for the first time.


Well, each year the IRS establishes Roth IRA income limits, and if you earn more than the upper limit, you're barred from making a direct contribution to your Roth IRA.

However, you're NOT barred from performing a Roth IRA rollover, and...

Since anyone, regardless of income, can make non-deductible contributions to a Traditional IRA, you can contribute the maximum amount to your Traditional IRA, then perform a Roth IRA rollover - effectively making a Roth IRA contribution since the non-deductible contributions are not subject to income and you haven't had a chance to generate taxable earnings yet.

Roth IRA Rollover 60 Day Rule

One notable provision of the Roth IRA rollover rules is the Roth IRA 60 day rollover rule.

Under the 60 day rule, you have exactly sixty calendar days to rollover (contribute) funds from your 401k or Traditional IRA to your Roth IRA.

If you take a rollover distribution from your 401k or Traditional IRA, but you fail to contribute that distribution to your Roth IRA within the 60 day window, in all likelihood, you'll owe a 10% early withdrawal penalty and you'll lose the ability to contribute those funds to your Roth IRA forever!

You can still make regular Roth IRA contributions, but in missing the 60 day window, your botched rollover effectively becomes indistinguishable from a regular distribution.

For example, let's say you're 42 years old and have $40,000 in your 401k, and you leave your job. You then decide to perform a Roth IRA conversion by rolling your 401k funds into your Roth IRA.

In initiating your rollover, your previous employer strikes you a check on April 5th for $32,000 (holding 20% back for tax purposes). It's now up to you to complete the Roth IRA rollover.

And under the Roth IRA rollover rules you have 60 calendar days to deposit those funds in your Roth IRA or the rollover fails.

So if you procrastinate and deposit the funds in your checking account, but put off moving them into your Roth IRA until June 10th, what happens?

The rollover fails because you missed the 60 day window for rolling the funds into your Roth IRA.

As a result, not only do you owe applicable income taxes (which you would've owed regardless), but you also owe a 10% early withdrawal penalty on the $40,000 distribution from your 401k because you're not yet age 59 ½ and its considered an early withdrawal.

But the worst part?

You missed your opportunity to put those funds in your Roth IRA where they would grow tax-free until your retirement years.

Now those funds are outside both your Roth IRA and your 401k - unable to take advantage of the tax-efficient growth both accounts offer.

The lesson?

If you take a direct rollover distribution, deposit those funds in your Roth IRA as soon as possible. Do not procrastinate!

Better yet, skip the rollover and perform a direct trustee-to-trustee transfer or a same trustee transfer so the converted funds go directly into your Roth IRA, then you don't have to worry.

Roth IRA Rollover Tax Rules

Taxation of distributions is treated differently under the Roth IRA rollover rules.

For instance, regardless of whether or not you're age 59 ½, the 10% early withdrawal penalty is waived for Roth IRA rollovers.

Nevertheless, you still owe income taxes on any tax deductible contributions and any investment gains which are being rolled over.

For example, let's say you have $40,000 in your Traditional IRA, and you're in the 25% tax bracket.

Assuming you funded your Traditional IRA with pre-tax dollars (tax deductible contributions), performing a Roth IRA rollover generates a $10,000 income tax bill ($40,000 x 25%).

And that reminds me of an important point.

How do you plan on paying that $10,000 tax bill?

If you have an extra $10,000 laying around, that's great! But most people don't.

Were you planning on paying the $10,000 tax bill with funds from the rollover?

If so, keep in mind that any funds NOT rolled over into your Roth IRA are subject to a 10% early withdrawal penalty if you're under age 59 ½.

For example, let's say you're 55 years old with $100,000 in your Traditional IRA, and you're in the 28% tax bracket.

Under the Roth IRA rollover rules, if you perform a rollover to a Roth IRA, you'll trigger an income tax liability of $28,000 ($100,000 x 28%).

But you can't just send the IRS a check for $28,000 and deposit the remaining $72,000 in your Roth IRA.


Because since you're under age 59 ½, you owe a 10% early withdrawal penalty on the $28,000 you withdrew to pay your income tax bill.

That means you really owe the IRS $30,800, not $28,000.

And what happens if you don't have an extra $2,800 to pay the 10% penalty?

Can you pay that with rollover funds too?

Well, consider the implications if you do use your rollover funds to pay the $30,800 tax bill.

Under the Roth IRA rollover rules, you then need recalculate the 10% early withdrawal penalty because now you're taking an early distribution of $30,800, not $28,000.

And what happens if you don't have the funds to pay the penalty? Do you see where this is going?

The point to remember is this - rollovers usually come with income tax bills.

Prepare to owe taxes on your Roth IRA rollover and have well thought out plan for paying them.

It's always a good idea to seek out the advice of a certified financial professional who can guide you through the process.

Money spent on reasonable fees is small potatoes compared to the peace of mind you get from doing things right the first time around!

Rollover Rules for Roth IRAs

The Roth IRA rollover rules are fairly easy to understand.

If you're looking to perform a rollover conversion, you need to:

  • Meet the eligibility requirements
  • Have an open/established Roth IRA account
  • Move the funds within the 60 day window
  • Pay any applicable taxes

While the Roth IRA rollover rules are easy to understand, and the process is usually simple, it's always a good idea to seek professional help when performing a Roth IRA rollover. The last thing you want is a failed rollover or unexpected taxes and/or penalties.

With professional guidance, you get peace of mind knowing your rollover is handled correctly.

Check out our new Facebook Page and follow us on Twitter!

Return to the top of Roth IRA Rollover Rules

Return to Roth IRA Rules

Return to the Your Roth IRA Website Homepage

What's New?

Read 5 Reasons Why I Love My Roth IRA, our part in the Good Financial Cents Roth IRA Movement!

Start planning ahead for next year by checking out 2017 Roth IRA contribution limits, and stay alert to this year's changes to the 2016 Roth IRA contribution limits.

Our family fully funds our Roth IRA with this website. Learn how you can do it too.

Are you confused or frustrated by the stock market? Learn how to build real wealth selecting individual stocks for your Roth IRA...

Read more about what's new on the Roth IRA blog.

Hi, I'm Britt, and this is my wife, Jen. Welcome to our Roth IRA information website!

This is our humble attempt to turn a passion for personal finance into the Web's #1 resource for Roth IRA information. But, believe it or not, this site is more than just a hobby. It's a real business that provides a stable and steady stream of income for our family. In fact, because of this site, Jen is able to be a full-time stay-at-home mom and spend more time with our daughter, Samantha.

But you want to know the best part? ...You can do the same thing! Anyone with a hobby or a passion (even with no previous experience building a website) can create a profitable site that generates extra income.

If you're tired of solely depending on your job(s) for family income, click here now and learn why our income is increasing despite the financial crisis and how we're making our dreams come true.

Search This Site

Roth IRA Basics

2016 Roth IRA Limits 2015 Roth IRA Limits 2014 Roth IRA Limits Roth IRA Rules Roth IRA Benefits Roth IRA Eligibility Roth IRA Income Limits Roth IRA Withdrawals Roth IRA Contribution Limits Open A Roth IRA

Roth IRA Calculators

More About Roth IRAs

Roth IRA Limits Roth IRA Comparisons Roth IRA Penalties Roth IRA Accounts Roth IRA Taxes Roth IRA Contributions Roth IRA Distributions Roth IRA Investing Roth IRA Rollover Rules Roth IRA Conversions

Roth IRA Resources

Best Roth IRA Brokers Roth IRA Calculators Roth IRA Interviews Investing Books Investment Research Site Build It!

About Your Roth IRA

About Us Our Roth IRA

Like Us On Facebook

Follow Us On Twitter


[?] Subscribe To
This Site

Add to Google
Add to My Yahoo!
Add to My MSN
Add to Newsgator
Subscribe with Bloglines


The information contained in Your Roth IRA is for general information purposes only and does not constitute professional financial advice. Please contact an independent financial professional when seeking advice regarding your specific financial situation.

For more information, please consult our full Disclaimer Policy as well as our Privacy Policy.

Thank You

Our family started this site as a labor of love in February 2009, a few months after our daughter was born.

Thank you for helping it become one of the most visited Roth IRA information sites.

Thank you, too, to the "SBI!" software that made it all possible.

We hope you find what you're looking for and wish you much continued success in your retirement planning!

Copyright© 2009-2015 Britt Gillette.