Top 10 IRA Rollover Mistakes

Aaron Lieberman |

1. IRA-to-IRA Rollovers and Roth IRA-to-Roth IRA Rollovers:

  • Using 60-day IRA rollovers instead of using transfers to move IRA funds
  • Once-per-year rule is for all IRAs and Roth IRAs
  • IRS has no authority to correct these mistakes
  • New client rollover mistakes - not asking about prior rollovers
  • Not knowing the exceptions to the once-per-year IRA rollover rule

2. Non-Spouse Rollovers are NOT Permitted:

  • Non-spouse beneficiary cannot do a rollover
  • Taking a lump-sum distribution
  • Putting a decedent’s IRA funds into your own IRA
  • Paying out the entire IRA to a trust beneficiary

3. Spousal Rollovers:

  • Spousal rollover before age 59½
  • Forgetting to do the spousal rollover at age 59½
  • Not naming a successor beneficiary of the inherited IRA

4. 401(k) Rollovers to IRAs:

  • Not reviewing all options (IRA rollover is not the only option.)
  • Receiving a distribution personally and being subject to 20% withholding
  • Not knowing the creditor protection of IRAs in your state
  • Not first asking about the NUA (net unrealized appreciation) tax break
  • Rolling over highly appreciated company stock to an IRA
  • Not allocating the after-tax portion (basis) to a Roth IRA tax-free

5. After-Tax Rollovers From Plans to IRAs and Roth IRAs:

  • Not being aware of the allocation rules that allow the tax-free Roth conversion of after-tax plan funds
  • Failing to allocate pre-tax and after-tax amounts to the correct account
  • Taking only after-tax funds out for tax-free Roth conversions (generally won’t work)
  • Rolling over all funds to a traditional IRA (rules do not apply to IRA distributions)
  • Choosing to receive all funds personally
Copyright © 2022, Ed Slott and Company, LLC Reprinted from The Slott Report, 2022, with permission. Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.