What is the 60-day rollover rule?
If your retirement plan pays the money to you, the 60-day rollover rule gives you 60 days to put it into an IRA to complete an indirect rollover. To avoid tax on the full payment, you need to roll over the full amount within 60 days, including anything withheld for federal tax. Moving money this way is known as an indirect rollover. The plan hands the funds to you, and it's up to you to place them in the new account.
The 20% your plan holds back
If a 401(k) sends the payment to you personally, it has to set aside 20% for federal tax. This is withholding, meaning the plan forwards that portion to the IRS for you, and your check ends up smaller than your full balance.
Say you cash out $20,000: the plan keeps $4,000 and pays you the rest. Rolling over the entire $20,000 means coming up with the other $4,000 from your own pocket.
Whatever doesn't reach the IRA by the deadline counts as income, and it can also bring a 10% early-withdrawal charge. That extra charge is 10% of the amount that ends up taxable.
A direct rollover avoids withholding
With a direct rollover, your old plan sends the money straight to the company that will hold your new IRA. Since you never touch it, nothing is withheld and no tax applies. There's also no 20% gap you'd have to cover yourself.
Three routes for a $20,000 move
| Choice | Held back | Where the money lands | Tax or penalty due now |
|---|---|---|---|
| Straight into an IRA | $0 | The full $20,000 lands in the IRA | None |
| Indirect rollover, with the full $20,000 redeposited in 60 days | $4,000 | A check for the rest, plus $4,000 from you | Nothing on the rolled-over part |
| Cash-out at 45, 22% federal bracket, 5% state | $4,000 | $12,600 left after taxes | $2,000 extra tax, $4,400 federal, $1,000 state |
Can it go into a crypto IRA?
Yes. A rollover can move 401(k) savings into a self-directed IRA, an IRA that lets you choose investments beyond the standard funds, including coins. The company that holds the IRA needs to permit those investments.
Funds sitting in a former employer's plan can roll over whenever you like. Money still in your current employer's 401(k) can move only through an in-service rollover, and only when the plan permits it.
A crypto IRA follows the same 60-day deadline and 20% withholding rules. A direct rollover avoids both, so it's usually the simpler way in.
Questions people often ask
How many 60-day rollovers can I make in 12 months?
You're allowed 1 rollover in any 1-year period when moving money from one IRA to another IRA. That cap doesn't cover 401(k)-to-IRA rollovers, and it doesn't cover direct transfers from one IRA company to another.
What if my 401(k) rollover misses the 60-day mark?
In most cases the money is treated as a withdrawal and taxed. In some situations you can still complete the rollover by self-certifying that you qualify for a waiver, and the IRS page lists which reasons count.
Do Roth IRA rollovers follow the same tax rules?
Not quite. Moving pre-tax 401(k) savings into a Roth IRA adds to your taxable income that year, and the 60-day deadline applies only if the plan pays the money to you. As an example, converting $30,000 at a 22% tax rate means roughly $6,600 more in federal tax for that year.