The 60 day rule, in numbers

Published 2026-09-15 · Last reviewed 2026-09-21

Moving an old workplace retirement account takes one of two forms, and they look nothing alike on the day. In a direct rollover the money travels between institutions and you never touch it: no tax is withheld and no clock starts. In an indirect rollover the plan pays you, which means the plan must take federal income tax out first, and which also means you now owe the account the full amount back inside a fixed window. That window is not a grace period you can negotiate - it is the definition of the exemption.

What the check actually costs

Take a $17,000 balance and a 24 percent marginal rate. The plan withholds $3,400 - the mandatory 20 percent - so the check that arrives is $13,600. To keep the rollover tax-free you have to deposit the whole $17,000 into the new account within 60 days, which means finding the other $3,400 somewhere else. That last part is what surprises people: the withheld money is yours, but it is not in your hands.

Miss the window and the withheld $3,400 stops being a deposit and becomes a distribution. At this rate that is $816 of income tax, a bill the withholding has already partly paid, plus the 10 percent additional tax of $340 if you are under 59 1/2. Spend the check rather than replace it and the same arithmetic applies to the part you kept.

There is a slower cost as well. Had that $3,400 stayed invested for the next 20 years at 7 percent a year, it would have grown to about $13,035 by retirement. That is the size of the mistake, and it is why a direct transfer is worth asking for by name.

Fees are the quieter half

The withholding is a one-off, visible cost. Fees are an annual, invisible one, and they are the reason the calculator asks for four numbers rather than one rate of return. With a plan at 0.5 percent plus a $60 account fee a year, and an IRA at 0.05 percent with no account fee, the plan charges $4,413 of fees over 20 years and the IRA charges $347. The final balances end up $7,600 apart - money that does nothing except sit on the other side of the expense ratio.

None of those four numbers is a national average printed by this site: the expense ratio and flat fee for the plan are on its annual fee disclosure, and the IRA's pair is on the fund prospectus and the broker's fee schedule. Two minutes with those documents beats any default a site could guess at.

Three rules that move in different directions

• Leave your job in or after the year you turn 55 and the plan may pay you without the 10 percent additional tax. That exception belongs to qualified plans; an IRA does not inherit it. Rolling that money into an IRA can therefore make a later withdrawal more expensive, not less.
• Still working for the plan's sponsor at the age required distributions would otherwise start - 73 or 75, depending on your birth year, and not a 5 percent owner, the plan can delay required distributions until you stop working. An IRA cannot delay them.
• An IRA-to-IRA 60 day rollover is limited to one per twelve months, aggregated across all your IRAs. Rollovers out of a workplace plan are not subject to that limit, and a direct trustee-to-trustee transfer is not either.

Where these numbers come from

• IRS, Rollovers of retirement plan and IRA distributions - the 60 day window, the difference between a direct rollover and a payment made to you, and the worked example of a $10,000 distribution with $2,000 withheld.
• IRS, Exceptions to tax on early distributions - the 10 percent additional tax before 59 1/2, and the separation-from-service exception at 55, marked as applying to qualified plans and not to IRAs.
• IRS, required minimum distribution FAQs - distributions generally begin at 73 for those born 1951 through 1959 and at 75 for those born in 1960 or later, and the still-working delay.
• The expected return and the four fee figures are numbers you enter. This page prints no assumed market return and no average fund fee, because both vary by decade and by account.

What this guide does not cover

Not modelled: employer stock and the net unrealized appreciation rules, after-tax basis inside the plan, an outstanding plan loan and the offset a rollover triggers, the difference between ERISA and state-law creditor protection, conversion to a Roth account, and state income tax. The arithmetic here is federal, and it is arithmetic - not tax advice. A plan is also not obliged to accept a rollover at all.

Work through your own account in the 401(k) Rollover Calculator, see what the balance becomes if you leave it alone in the 401(k) Calculator, or start from the Retirement Calculator.

Estimates only - not financial, tax or legal advice. Read the full disclaimer.