Using Serial IRAs to Stretch the 60-Day Rule for IRA Rollovers

By Natalie B. Takacs, CPA, M. Tax., Cohen & Company, Ltd., Mentor, OH

Editor: Anthony S. Bakale, CPA, MT

Last tax season, a residential homebuilder client was looking for $100,000 of financing to help keep his business going until he could sell some of his existing properties. Because of the decline in the Cleveland real estate market, the client was unable to obtain the needed financing from traditional sources; however, he did have approximately $500,000 in his IRA. Although the client felt confident that one of his properties would sell in the upcoming months, he knew that it would likely take more than 60 days to close on one of the existing properties. With proper planning, the client was able to extend the typical 60-day window for IRA rollovers to 300 days, which provided him with the time he needed to sell his properties while avoiding a taxable distribution from his IRA.

Sec. 408(d)(3)(B) permits taxpayers to roll over a distribution from one IRA to another IRA as long as the rollover is completed within 60 calendar days from the date on which the taxpayer received the distribution (the 60-day rule) (Sec. 408(d)(3)(A)); however, an individual is allowed only one rollover in each 12-month period (the 12-month rule). When an individual has more than one IRA, the 12-month rule applies separately to each IRA. Thus, by splitting an existing single IRA into multiple IRAs, it is possible to gain a 60-day window for each IRA. Admittedly, such splitting reduces the amount of available money because each IRA’s balance is reduced; however, in the right situation this strategy can provide an effective form of tax-free financing for an extended period of time.

Five Steps to Stretch an IRA Rollover

The following is an outline of the steps that can be taken to stretch the 60-day IRA rollover window to 300 days without violating the 12-month rule:

1. Via a trustee-to-trustee transfer, the $500,000 balance in the existing IRA (IRA 1) was divided into five new IRAs (IRAs 2–6), each containing $100,000. In addition, the trustee created a new recipient IRA, IRA 7, to receive the repayment of the rollovers from IRAs 2–6.

2. Day 1: $100,000 was withdrawn from IRA 2. Nonperiodic IRA distributions generally are subject to 10% federal income tax withholding; however, if a client intends to repay the distribution within the applicable 60-day period, he or she can elect not to have any income taxes withheld by completing IRS Form W-4P, Withholding Certificate for Pension or Annuity Payments (otherwise the client will have to fund the 10% from non-IRA funds when he or she completes the rollover).

3. Day 61: $100,000 was withdrawn from IRA 3 and deposited into the recipient IRA 7. This transaction timely completed the rollover of the $100,000 initially withdrawn from IRA 2 on day 1.

4. Day 121: $100,000 was withdrawn from IRA 4 and deposited into the recipient IRA 7. This transaction timely completed the rollover of the $100,000 withdrawn from IRA 3 on day 61.

5. Day 181: The client had closed on the sale of one of his homes and was able to deposit $100,000 of the proceeds from the sale into the recipient IRA 7. This transaction timely completed the rollover of the $100,000 withdrawn from IRA 4 on day 121. Because the client did not need to withdraw the $100,000 from IRA 5 or IRA 6, the client still can use the rollover strategy to access an additional $200,000 from these IRAs to fund future financing needs.

Further Planning Considerations

It should be noted, however, that if the client were to withdraw any amount from IRA 7 prior to day 486 (i.e., one year following the distribution of the $100,000 from IRA 4 on day 121), under the 12-month rule, the distribution amount would be taxable when withdrawn and would not be eligible for tax-free rollover. If future access to the funds that are redeposited to the recipient IRA (i.e., IRA 7) is important, it may be advisable to set up a series of recipient IRAs (e.g., IRAs 8–11, etc.) to separately receive the repayments of the distributions from the distributing IRAs (i.e., IRAs 2–6 in the previous example).

Under this alternative, the funds from IRA 2 would be deposited to IRA 7, and the redeposited funds could be withdrawn from IRA 7 on day 366 (i.e., one year following the distribution of the $100,000 from IRA 2 on day 1), as opposed to day 486. The funds redeposited to the other recipient IRAs (IRAs 8, 9, 10, 11, etc.) would be available for withdrawal from each recipient IRA one year from the date on which the rollover funds were distributed from the respective distributing IRA.

Caution: When implementing the stretch IRA strategy, clients should keep in mind that amounts not deposited into an IRA by the applicable 60-day deadline generally are taxable as a distribution and are potentially subject to the 10% penalty applicable to distributions received by taxpayers who have not attained age 59½ at the time of the distribution. Even if the IRA distribution were subject to withholding, it is likely that the client’s actual tax liability on the taxable IRA distribution would exceed the amount that was withheld.

Waiving the 60-Day Rollover Period

The IRS has the discretionary authority to waive the 60-day rollover period if an individual suffers a casualty, disaster, or other event beyond his or her reasonable control and not waiving the 60-day requirement would be against equity or good conscience (Sec. 402(c)(3)(B)). Waiver of the 60-day rollover period may be automatic if a financial institution’s error caused the rollover to be untimely.

An automatic waiver is available only when the taxpayer actually deposits the funds into an eligible retirement plan within one year from the beginning of the 60-day rollover period. If a taxpayer does not qualify for an automatic waiver, he or she can submit a private letter ruling request, which requires the payment of a user fee ranging from $625 (for individuals whose gross income does not exceed $250,000) to $10,000. In considering whether to grant relief, the IRS will consider all relevant facts and circumstances, including:

  • Whether errors (other than those qualifying for automatic relief) were made by the financial institution;
  • Whether the taxpayer was unable to complete the rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country, or postal error;
  • Whether the taxpayer used the amount distributed (e.g., in the case of a payment by check, the taxpayer cashed the check); and
  • How much time has passed since the date of distribution.

Although the IRS has granted relief in a variety of circumstances, it generally denies relief in the case of distributions that taxpayers initiate as short-term interest-free loans to cover personal expenses (see, e.g., Letter Ruling 200544022).


For a client who is unable to complete the IRA rollover in a timely manner, it is possible that the income tax (and penalty, if applicable) on the failed rollover could be only the beginning of a downward financial spiral. For this reason, clients should carefully evaluate the potential adverse implications should they become unable to successfully complete the rollovers required by the stretch IRA strategy. Because IRA assets generally are protected from creditors, the stretch IRA strategy may not be appropriate if bankruptcy is a reasonably foreseeable outcome. Such clients might be better off leaving the money in their IRAs because withdrawing it from the IRA could unnecessarily expose the funds to creditors.


Anthony S. Bakale is with Cohen & Company, Ltd. Baker Tilly International in Cleveland, OH

Unless otherwise noted, contributors are members of or associated with Baker Tilly International.

If you would like additional information about these items, contact Mr. Bakale at (216) 579-1040 or

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