By Theresa Cagle Fry, Senior Vice President, Manager, IRAs, Retirement & Education Planning
The Internal Revenue Code is a labyrinth of thousands of shifting rules, sections and regulations—so vast and ever-changing that no one truly knows how many traps it holds. One wrong turn, one overlooked detail, and you could trigger a costly mistake with your retirement savings accounts before you even realize it. If you’re navigating the rollover labyrinth without help, beware: the consequences can be both sudden and severe.
Let’s reveal some of the most common rollover mistakes—and how to avoid falling into their hidden snares.
Mistake #1: Rolling Over (or Converting) Your RMDs
Once you reach a certain age, the IRS demands its due. These mandatory withdrawals—Required Minimum Distributions (RMDs)—begin at age 73, rising to 75 in 2033 for those born in 1960 or later. If you’re still working, you may delay RMDs from your workplace plan—but only until you retire or separate from service. [i] After that, the clock starts ticking.
Fail to take your RMD and the IRS will hit you with a 25% penalty on the shortfall.[ii] But the real horror begins when someone unknowingly rolls over an RMD. It seems harmless. It’s not. RMDs can never be rolled over.
That ineligible rollover becomes an excess contribution, and excess contributions must be corrected by removing them. With a timely correction, the earnings attributable to the excess must also be removed and will become taxable. If not corrected timely, excess contributions can continue like a curse, haunting you year after year through a 6% annual excise tax.
These mistakes often happen when individuals try to move their accounts themselves—without requesting a direct trustee-to-trustee transfer between financial institutions. If you forget to hold back the RMD before completing the rollover, you’ve already stepped into the trap. And for example, if you retire at age 73 or older and want to roll over your 401(k) into an IRA, it’s best to verify you’ll receive your RMD when you make your rollover request. The plan administrator should send it to you automatically. If they don’t? You’re left to untangle a mess.
Even Roth conversions aren’t safe from RMD mishaps. If you’re 73 or older and try to convert before satisfying your RMD, you’ve crossed a forbidden line. Even though both RMDs and Roth conversions are taxable to you, the IRS requires you to take your RMD first—no exceptions.
Bottom line: if you’re required to take distributions, the RMD comes first. Always. Or risk unleashing a financial nightmare.
Mistake #2: Not Completing Your Rollover Within 60 Calendar Days
Retirement accounts, like 401(k)s and IRAs, are tax-deferred so you generally must pay income taxes when you receive a distribution of retirement plan or IRA assets. When a distribution is paid to you, and that distribution is eligible for rollover, you can re-deposit the assets you received within 60 calendar days into an eligible plan or IRA. By completing a 60-day rollover, you can continue tax deferral and avoid payment of income taxes. Miss that window, and there will be tax consequences. You must generally include the distribution in your taxable income and, if you are younger than age 59 ½, pay a 10% early withdrawal penalty.
If circumstances beyond your control prevent you from completing the rollover, the IRS may grant a waiver. You’ll need to navigate automatic extensions or self-certification procedures—each with its own process to follow. IRS 60-Day Rollover Waiver FAQs provide helpful information if you find yourself trapped and time is running out.
Mistake #3: Completing More Than One IRA-to-IRA Rollover in a Year
The 60-day rule isn’t the only trap. Indirect rollovers between IRA accounts are limited to one per 12-month period—across all your IRAs, including traditional IRAs, Roth IRAs, SEP IRAs or SIMPLE IRAs. That means if you roll over a distribution that you received from your traditional IRA in July 2025, any other distribution from any IRA before July 2026 is ineligible for rollover.
Rollovers from employer plans like 401(k)s or pensions aren’t subject to this rule. Neither are Roth conversions or direct trustee-to-trustee transfers between financial institutions. But if you cross the line with IRA-to-IRA rollovers, there’s no forgiveness. The IRS offers no waivers. The excess contribution becomes a nightmare—triggering a cascade of consequences that may not surface until years later… when the IRS comes knocking.
Mistake #4: Rolling Over an IRA You Inherited if You are Not the Spouse
Non-spouse beneficiaries that inherit IRAs or other retirement accounts need to be especially careful not to make costly rollover mistakes. Inherited IRAs cannot be rolled over using the 60-day rule—unless you’re the surviving spouse. The only safe passage is a direct rollover from a retirement plan to an inherited IRA or a direct trustee-to-trustee transfer between inherited IRAs.
Once the account is distributed to a non-spouse beneficiary, it’s over. You cannot roll it over. You cannot combine it with your own IRAs. One wrong move, and the damage is irreversible.
Final Warning: Don’t Write Your Own Financial Horror Story
With countless traps lurking in every shadow, rollovers are not a DIY project. One misstep can unleash a financial nightmare that could haunt your future. Before you take a single step, make sure you’re not walking into the dark alone.
Reach out to a financial advisor—before the maze closes in.
IMPORTANT DISCLOSURES: The information provided is based on internal and external sources that are considered reliable; however, the accuracy of this information is not guaranteed. This piece is intended to provide accurate information regarding the subject matter discussed. It is made available with the understanding that Benjamin F. Edwards & Co. is not engaged in rendering legal, accounting or tax preparation services. Specific questions on taxes or legal matters as they relate to your individual situation should be directed to your tax or legal professional.
[i] For active employees in a workplace retirement plan who own 5% or more of the business, RMDs must begin at their required start age. They cannot be delayed until retirement or separation from service.
[ii] The penalty can be reduced to 10% if it is corrected within a two-year correction window. The penalty can also be waived if due to “reasonable error”. Consult your tax advisor for details.