Rollovers

If you withdraw cash or other assets from a qualified retirement plan in an eligible rollover distribution, you can generally defer tax on the distribution by rolling it over to another qualified retirement plan, a traditional IRA, or, after 2 years of participation in a SIMPLE IRA sponsored by your employer, a SIMPLE IRA under that plan. You don’t include the amount rolled over in your income until you receive it in a distribution from the recipient plan or IRA without rolling over that distribution. (For information about rollovers from traditional IRAs, see chapter 1 of Pub. 590-A.)

If you roll over the distribution to a traditional IRA, you can’t deduct the amount rolled over as an IRA contribution. When you later withdraw it from the IRA, it will be subject to the normal rules for IRA distributions and will be taxed as ordinary income.

Self-employed individuals are generally treated as employees for the rules on the tax treatment of distributions, including the rules for rollovers.

See Designated Roth accounts , later, for information on rollovers (including in-plan Roth rollovers) related to those accounts. Also, see Rollovers to Roth IRAs , later, for infor- mation on rollovers from a qualified retirement plan to a Roth IRA.

Publication 575 (2025) 21

(QDRO), Rollover by surviving spouse, and Rollovers by nonspouse beneficiary , later.

Rollover of nontaxable amounts. You may be able to roll over the nontaxable part of a distribution (such as your after-tax contributions) made to another qualified retirement plan that is a qualified employee plan or a 403(b) plan, or to a traditional or Roth IRA. The transfer must be made either through a direct rollover to a qualified plan or 403(b) plan that separately accounts for the taxable and nontaxable parts of the rollover or through a rollover to a traditional or Roth IRA.

If you roll over only part of a distribution that includes both taxable and nontaxable amounts, the amount you roll over is treated as coming first from the taxable part of the distribution.

Any after-tax contributions that you roll over into your traditional IRA become part of your basis (cost) in your IRAs. To recover your basis when you take distributions from your IRA, you must complete Form 8606, Nondeductible IRAs, for the year of the distribution. For more information, see the Instructions for Form 8606.

Withholding requirements. If an eligible rollover distribution is paid to you, the payer must withhold 20% of it. This applies even if you plan to roll over the distribution to another qualified retirement plan or to an IRA. However, you can avoid withholding by choosing the direct rollover option, discussed later. Also, see Choosing the right op- tion at the end of this discussion.

Exceptions. An eligible rollover distribution isn’t subject to withholding to the extent it consists of NUA from employer securities that can be excluded from your gross income. (For a discussion of the tax treatment of a distribution of employer securities, see Figuring the Taxable Amount under Taxation of Nonperiodic Payments , earlier.)

In addition, withholding from an eligible rollover distribu- tion paid to you isn’t required if:

• The distribution and all previous eligible rollover distributions you received during the tax year from the same plan (or, at the payer’s option, from all your employer’s plans) total less than $200; or

• The distribution consists solely of employer securities, plus cash of $200 or less instead of fractional shares.

Direct rollover option. You can choose to have any part or all of an eligible rollover distribution paid directly to another qualified retirement plan that accepts rollover distributions or to a traditional or Roth IRA.

There is an automatic rollover requirement for mandatory distributions. A mandatory distribution is a distribution made without your consent and before you reach age 62 or normal retirement age, whichever is later. The automatic rollover requirement applies if the distribution is more than $1,000 and is an eligible rollover distribution. You can choose to have the distribution paid directly to you or rolled over directly to your traditional or Roth IRA or another qualified retirement plan. If you don’t make this choice, the plan administrator will automatically roll over

the distribution into an IRA of a designated trustee or issuer.

No tax withheld. If you choose the direct rollover option, or have an automatic rollover, no tax will be withheld from any part of the distribution that is directly paid to the trustee of the other plan. If any part of the eligible rollover distribution is paid to you, the payer must generally withhold 20% of it for income tax.

Payment-to-you option. If an eligible rollover distribution is paid to you, 20% will generally be withheld for income tax. However, the full amount is treated as distributed to you even though you actually receive only 80%. You must generally include in income any part (including the part withheld) that you don’t roll over within 60 days to another qualified retirement plan or to a traditional or Roth IRA.

If you are under age 59 ¹ /2 when a distribution is paid to you, you may have to pay a 10% tax (in addition to the regular income tax) on the taxable part (including any tax withheld) that you don’t roll over. See Tax on Early Distri- butions, later.

Partial rollovers. If you roll over any part of a lump-sum distribution, the part you keep will be subject to ordinary income tax. You will report the taxable part of the distribution that you don’t roll over as ordinary income on your tax return.

Rolling over more than amount received. If