Second Check-Based IRA Rollover in One Year Creates $90,000 Tax Bill
A saver who moved two traditional IRAs by check in the same year triggered the IRS once-per-year rollover limit, making the second $90,000 transfer a taxable distribution. That mistake can add ordinary income tax plus a $9,000 early-withdrawal penalty for someone under 59½, along with a 6% annual excess-contribution tax if the money stays in the account. Direct trustee-to-trustee transfers are not subject to the once-per-year rule and can be used repeatedly.
The IRS treats all of an individual’s IRAs as a single pool for the one-rollover-per-365-days restriction. That interpretation followed Bobrow v. Commissioner and took effect in 2015, replacing earlier guidance that had applied the limit separately to each account. The countdown begins when the owner receives the distribution, not when the check is deposited.
Traditional IRAs are widely held, and most money entering them arrives through rollovers. Accounts containing rollover funds also tend to be larger, so a $90,000 balance is not unusual. A failed rollover becomes ordinary income, and owners under 59½ may owe an additional 10% penalty.
This rule may affect savers consolidating multiple IRAs, especially those with rollover-heavy balances. A single check-based transfer could create unexpected tax liability, reducing retirement savings and causing stress. Financial advisers and custodians may face more demand for direct trustee-to-trustee transfers, which avoid the limit. Greater awareness could lead to simpler, safer account moves, though confusion may persist among do-it-yourself investors.