She Moved Two IRAs by Check in the Same Year. The Second One Became a $90,000 Taxable Distribution

This article covers the IRS once-per-year IRA rollover rule. It can turn an ordinary account cleanup into a large tax bill. A saver moves two traditional IRAs to a new brokerage in the same year by having each custodian mail her a check. The first deposit goes through as a tax-free rollover. The second one, worth $90,000, is treated as a taxable distribution, and while she met the deadline both times, what sank her was how often she used the check method.

Why Most Traditional IRA Money Is Exposed to This Rule

Traditional IRAs are the most common type of IRA. They were held by 31.3% of U.S. households as of mid-2023, according to the Investment Company Institute. ICI also found that nearly two-thirds of families with traditional IRAs have accounts holding retirement plan rollovers.

A Congressional Research Service report makes the same point more sharply. It found that over 96% of inflows to traditional IRAs came from rollovers. Moving money is how these accounts grow, so rules on moving money affect many people. Rollover accounts tend to be larger. ICI data puts the median traditional IRA balance with rollovers at $180,000, compared with $50,000 for accounts without them. Fidelity reported a record average IRA balance of $137,902 in the third quarter of 2025, putting a $90,000 account well within the normal range.

How One Limit Covers Every IRA a Person Owns

The current rule comes from a Tax Court case, Bobrow v. Commissioner. For years, IRS Publication 590 said the once-per-year limit applied to each IRA separately. After Bobrow, the IRS reinterpreted it: an owner gets only one IRA-to-IRA rollover in a 365-day period, counting all of their IRAs together. Enforcement began January 1, 2015, according to IRA specialist Ed Slott’s summary in Financial Planning.

The clock starts on the day the owner gets the distribution. A distribution received on December 10 and rolled over within 60 days blocks any other IRA-to-IRA rollover until December 10 of the following year. Indirect rollovers can happen only once in a 12-month period.

For the saver in this example, the first check started that clock. The second check arrived inside the same window, so it failed the rollover test even though she deposited it within the 60 days allowed. For this rule, her two accounts at two different custodians counted as one.

What a Failed $90,000 Rollover Costs

A disallowed rollover is treated as ordinary income for tax purposes in the year of the distribution. If the saver is under age 59½, she also owes a 10% early distribution penalty. On $90,000, that penalty is $9,000.

If the money stays in the new IRA, it is treated as a regular contribution, and anything above the annual limit is an excess contribution. That excess faces a 6% tax for every year it stays in the account, close to $5,400 a year on this balance.

The extra income can push a household into a higher tax bracket and raise income-based costs such as Medicare premiums. Checks from 401(k) plans arrive with 20% withheld unless the money moves directly from one custodian to another.

Transfers and Rollovers That Skip the Limit Entirely

The limit applies only to IRA-to-IRA rollovers where the owner handles the money in person; in a direct trustee-to-trustee transfer, one custodian sends the funds straight to the other. Those transfers are outside the rule and can happen any number of times in a year.

Slott’s summary lists several other exceptions:

• Conversions from a pretax IRA to a Roth IRA
• Rollovers to or from an employer plan such as a 401(k)
• First-time homebuyer distributions that are canceled or delayed
• Qualified reservist distributions that are repaid on time

Where Savers With Multiple IRAs Stand Before Consolidating

The two methods look almost the same from the outside, since in both the money leaves one account and ends up in another. The tax result depends on whether it passed through the owner’s hands and how recently.

Someone who has already made a second rollover within the 365-day window may reduce the ongoing 6% tax by taking the excess and its earnings before the tax filing deadline. The income tax on the original distribution generally remains. Brokerages usually offer transfer request forms that send money directly between custodians. For households holding several rollover IRAs from past jobs, the method used determines whether a move is tax-free.

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