Avoid These 10 Common IRA Rollover Mistakes That Could Cost You Taxes and Penalties

When you’ve spent decades building retirement savings, the last thing you want is an IRA Rollover mistake triggering unexpected taxes or penalties.

Yet IRA rollovers are one of the most common places we see costly errors—especially when someone changes jobs, inherits an IRA, goes through a divorce, or tries to consolidate accounts.

At first glance, a rollover sounds simple: move money from one retirement account to another. But the IRS rules surrounding retirement rollovers are surprisingly complex, and even a small mistake can permanently impact your retirement savings.

That’s why we created a simple resource you can use to double-check your decisions.

Download our guide, “Top 10 IRA Rollover Mistakes,” to help protect your retirement savings and ensure your rollover is done right the first time.

In this article, we’ll answer some of the most common questions retirees and pre-retirees ask about rollovers—and highlight the costly mistakes you’ll want to avoid.

What Is an IRA Rollover?

An IRA rollover occurs when you move retirement funds from one account to another—often from a workplace plan like a 401(k) into an IRA, or between different IRA accounts.

Rollovers typically happen when:

• You retire or leave a job
• You inherit a retirement account
• You consolidate retirement accounts
• You convert a traditional IRA to a Roth IRA
• You divide retirement assets during a divorce

While these moves can offer planning opportunities, they also come with strict IRS rules.

What Is the Difference Between an IRA Transfer and an IRA Rollover?

Many investors mistakenly believe these are the same thing.

They are not.

An IRA transfer moves money directly from one financial institution to another. The funds never pass through your hands.

A rollover, on the other hand, often involves receiving the funds and redepositing them within 60 days.

Whenever possible, financial professionals typically recommend direct transfers, because they eliminate several IRS risks.

One of the most common mistakes we see is investors using a 60-day rollover when a direct transfer would have been safer.

What Is the 60-Day IRA Rollover Rule?

If you receive a retirement distribution personally, you generally have 60 days to redeposit the funds into another retirement account.

Miss the deadline and the IRS may treat the entire amount as a taxable distribution, potentially adding a 10% early withdrawal penalty if you’re under age 59½.

Some investors assume the IRS can simply “fix” a late rollover. In reality, the IRS has very limited authority to correct rollover mistakes.

How Many IRA Rollovers Are Allowed Per Year?

Another rule that surprises many investors is the once-per-year rollover rule.

You are allowed only one 60-day IRA rollover per 12-month period, and this rule applies across all your IRAs combined—not per account.

Many people accidentally violate this rule when consolidating accounts.

For example, rolling over two separate IRAs in the same year could unintentionally trigger taxes on the second transaction.

Can You Roll Over an Inherited IRA?

This is one of the most misunderstood retirement rules.

If you inherit an IRA and you are not the spouse, you cannot perform a rollover.

Common mistakes include:

• Taking a full lump-sum distribution unnecessarily
• Moving the inherited IRA into your own IRA
• Accidentally distributing the entire IRA to a trust beneficiary

Instead, most non-spouse beneficiaries must move the account into an Inherited IRA and follow distribution rules under current tax law.

What Special Rollover Options Do Spouses Have?

Spouses have more flexibility than other beneficiaries.

A surviving spouse can:

• Treat the inherited IRA as their own
• Roll the account into their own IRA
• Maintain it as an inherited IRA

However, timing matters.

For example:

• A spousal rollover before age 59½ could trigger penalties if withdrawals are needed.
• Some spouses forget to complete the rollover after turning 59½ when it may become advantageous.

Proper planning can prevent costly mistakes.

What Should You Consider Before Rolling Over a 401(k) to an IRA?

Many investors automatically roll a 401(k) into an IRA when leaving a job.

But this isn’t always the best option.

Before moving a workplace retirement plan, you should evaluate:

• Whether the plan offers creditor protection advantages
• Whether Net Unrealized Appreciation (NUA) may provide tax savings on company stock
• Whether after-tax contributions can be allocated to a Roth IRA tax-free
• Whether the plan’s investment options are competitive

Failing to review these options is one of the most common rollover mistakes.

What Mistakes Happen During Roth Conversions?

A Roth conversion (technically an IRA-to-Roth rollover) can be a powerful tax planning strategy.

But it can also trigger unexpected tax consequences.

Common mistakes include:

• Not estimating the tax impact before converting
• Accidentally converting funds that include required minimum distributions (RMDs)
• Attempting to convert a SIMPLE IRA before the required two-year waiting period
• Receiving the funds personally instead of completing a direct conversion

A poorly timed Roth conversion can increase taxes, Medicare premiums, or reduce certain tax benefits.

What Happens If You Receive Retirement Funds Personally?

If funds from a workplace retirement plan are paid directly to you, the plan is generally required to withhold 20% for federal taxes.

To complete a full rollover, you must replace the withheld 20% using other funds when redepositing the money.

Many investors don’t realize this rule until after the distribution occurs.

This is another reason direct rollovers are usually the safer option.

Can Retirement Accounts Be Rolled Over During Divorce?

Dividing retirement accounts in divorce requires special handling.

For employer plans, distributions are typically handled using a Qualified Domestic Relations Order (QDRO).

A QDRO allows funds to be distributed to the ex-spouse without triggering the 10% early withdrawal penalty—but only while the funds remain inside the employer plan.

If the funds are first rolled into an IRA and then withdrawn, the penalty exception may be lost.

Can You Roll an IRA Back Into a Company Plan?

Some employer plans allow incoming rollovers from IRAs.

However, only pre-tax funds can usually be moved into a company plan.

Mistakes can happen when:

• After-tax basis is rolled into the plan incorrectly
• Investors fail to convert remaining basis to a Roth IRA
• The plan does not accept IRA rollovers
• Plan restrictions limit access to the funds afterward

Checking plan rules in advance can prevent unpleasant surprises.

Why Professional Guidance Matters With Retirement Rollovers

IRA rollover rules intersect with tax law, estate planning, retirement income planning, and investment strategy.

One incorrect move can trigger:

• Unnecessary taxes
• Early withdrawal penalties
• Lost tax planning opportunities
• Permanent mistakes the IRS cannot reverse

That’s why many retirees and high-net-worth investors choose to review rollover decisions with a fiduciary advisor before taking action.

Download the Full Checklist: Top 10 IRA Rollover Mistakes

To help you navigate these rules with confidence, we’ve created a helpful guide you can keep for reference.

This guide walks through the most common rollover pitfalls and what you should know before moving retirement funds.

Financial Success Doesn’t Happen by Chance

Contact one of our talented advisors at 940-464-4104 to discuss your beneficiary or investment questions.

You may also schedule a free virtual consultation on our website.

RFG Wealth Advisory in Argyle, Texas, is an independent, fee-only Registered Investment Advisor firm that always puts our clients’ interests first. We have a transparent, simple fee structure that’s easy to understand.

Call us today.

About the Author: Chris Robinson, ChFC

About Chris Robinson | Founder & CEO of RFG Wealth Advisory in Argyle, TX

Chris Robinson is the Founder and CEO of RFG Wealth Advisory, a boutique wealth management firm serving families in North Texas communities.

A proud native Texan, Chris was born and raised in Denton, Texas. Today, he lives in Argyle—just minutes from the firm’s Argyle office—where he remains deeply connected to the community he serves.

With more than 30 years of experience as a financial advisor, Chris has dedicated his career to helping individuals and families pursue long-term financial confidence. He works alongside a highly skilled team to deliver thoughtful, personalized financial planning and investment strategies. At RFG Wealth Advisory, the guiding belief is simple:

“Financial Success Doesn’t Happen by Chance.”

Family & Life in North Texas

Chris has been married to his wife, Joyce, for nearly 23 years. Together they have four children—Henry, Jacob, Ben, and Molly. With two sons in college and two still at home, life is full and active. In the fall, you’ll often find Chris and Joyce on Saturdays cheering on Jacob at his college football games.

Personal Interests

Outside the office, Chris enjoys spending time outdoors and traveling with his family. In the summer, he can often be found fly fishing in the mountains. During quail season, he heads to West Texas with his kennel of bird dogs. He also appreciates fine wine and opportunities to explore new destinations around the world.

If you’re looking for an experienced financial advisor who values relationships, community, and intentional financial planning, Chris Robinson and the RFG Wealth Advisory team are committed to helping you build a purposeful path forward.