What Are the IRA Rollover Limits?

Understanding the limits imposed by the Internal Revenue Service (IRS) on IRA rollovers can be a crucial aspect of financial planning if you rely heavily on IRA funds for retirement. An IRA rollover limit refers to the maximum amount of money that one can transfer from a 401(k) or other employer-sponsored retirement plan into an IRA per year. It can also refer to the number of rollovers you can do from the same IRA account per year. Understanding these rules can help you protect your retirement.

You can also talk to a financial advisor who can use their expertise to help protect your money for retirement.

What Is a Rollover IRA?

A rollover IRA is a retirement account that allows you to transfer funds from your old employer-sponsored retirement plan, like a 401(k) or 403(b), into an IRA. The primary benefit of a rollover IRA is that it maintains the tax-deferred status of your retirement assets, which means you won’t be paying current income taxes or early withdrawal penalties at the time of the transfer.

Consider a scenario where you’re transitioning between jobs and you have a decent amount stashed in your previous employer’s 401(k) plan. If you were to cash this out, you’d face significant taxes and penalties. However, by transferring these funds into a rollover IRA, you can not only avoid these penalties but also retain greater control over your savings given the broader range of investment options offered by IRAs compared to employer-sponsored plans.

The ‘One-Per-Year’ IRA Rollover Rule

Here’s a common misunderstanding – the IRS does not limit the amount of money that you can roll over from your 401(k) to an IRA. However, they do have a rule, often referred to as the “one-per-year” rule, that applies to IRA-to-IRA rollovers. This rule allows for only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs you own.

This limit may become relevant when you’re consolidating multiple IRA accounts. If you have affected an IRA-to-IRA rollover within the past 12 months, you would need to wait before consolidating another IRA. Failure to abide by these rules may lead to taxes and penalties, which, in turn, can take a bite out of your retirement savings. Navigating these complex rules can be daunting and that’s where a financial advisor can provide much-needed guidance to help you comply.

Options for Your Old 401(k)

Rolling over a 401(k) to an IRA - what are the contribution limits?

When you leave a job, you have several choices for what to do with your old 401(k). One option is to leave it untouched with your former employer. However, this might keep you from exploring better investment options elsewhere and necessitate tracking the 401(k) separately from your other retirement accounts, which can be a potential hassle.

Alternatives include rolling your 401(k) into a new employer’s plan or an IRA. This could afford you more control over your investment choices and ensure that your retirement savings continue to grow tax-deferred. However, it’s important to closely look at any potentially associated fees or issues relating to tax treatment before making such decisions.

An additional option is cashing out your 401(k), which would grant immediate access to your funds. However, this choice comes with a warning: it could lead to taxes and potentially early withdrawal penalties, which could significantly decrease your retirement savings.

How to Complete an IRA Rollover

The first step in completing an IRA rollover is deciding between a direct and an indirect rollover. A direct rollover moves funds straight from one retirement account to another, reducing the risk of taxes or penalties. An indirect rollover gives you temporary access to the money but comes with stricter rules and deadlines.

If you don’t already have an IRA set up, you’ll need to open one before initiating the rollover. This involves choosing a financial institution and selecting the type of IRA that aligns with your tax strategy. Having the account ready helps ensure the transfer happens smoothly and without delays.

Once your IRA is established, contact the administrator of your existing retirement account to start the rollover. For direct rollovers, the funds are sent directly to the new IRA provider, often by check or electronic transfer. Clear instructions can help prevent errors that might trigger unintended tax consequences.

If you use an indirect rollover, the IRS requires that funds be deposited into the new IRA within 60 days. Missing this deadline can result in taxes and early withdrawal penalties. Staying mindful of timing is critical to preserving the tax-advantaged status of your retirement savings.

How Much Can You Contribute to an IRA Rollover Each Year?

While there is no limit on how much money can be rolled over into an IRA per year, there is an annual limit of how much you can directly contribute to one.

For 2026, the IRS allows you to contribute up to $7,500 to your IRAs or $8,600 if you’re 50 or older. Remember, these limits apply to the total contribution to all your IRAs and not to each individual account.

Overcontributing to your IRA can result in a 6% excess contribution penalty, applied annually until the surplus is corrected. Thus, it’s important to be mindful of these limits when planning your contributions. However, instead of focusing solely on the perils of over-contributing, the benefits of continuous, measured contributions to your IRA should be remembered.

Bottom Line

A man looking up the IRA rollover contribution limits.

IRA rollover limits and rules are designed to preserve the tax advantages of retirement savings while preventing misuse of these accounts. Understanding how often you can complete rollovers, which transactions count toward the limit and how deadlines apply can help you avoid unnecessary taxes and penalties. Taking the time to plan rollovers carefully can help ensure your retirement money stays on track.

Tips for Retirement

There are a lot of considerations when trying to plan out how much you need for retirement and how you should get there. Investors don’t need to worry, though, as you can work with a financial advisor to help you with the entire process. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goal, get started now.
Consider using a retirement calculator to help you see if you’re on track with your own savings.