You often need to do an IRA Rollover when

a. you leave a company and need to rollover your 401k to an IRA
b. you need to move an IRA (or other types of retirement funds) from one financial institution to another

Do it the wrong way and you will face unnecessary IRA rollover taxes  or potential penalties.

You have sixty days to avoid the IRA Rollover tax
After you receive the funds from your IRA (if you get a physical check from the financial institution), you have sixty days to complete the rollover to another IRA account. If you do not complete the rollover process within sixty days, you will pay an IRA Rollover tax on the funds as IRS will treat them as a distribution. That means you must include the amount as income on your tax return, where any taxable amounts will be taxed at your current ordinary income tax rate. Plus, if you did not reach age 59.5 when the distribution occurred, you’ll have a 10% penalty on this distribution.

One-Year Rule or face the IRA Rollover tax
Within one year after you distribute assets from your IRA and rollover any part  of that amount, you cannot make another rollover from the same IRA to another (or the same) IRA. For example, say that you have two IRAs – IRA-A and IRA-B – and you make a tax-free rollover from IRA-A into a new IRA (IRA-C).

Within one year of the distribution from IRA-A, you cannot make another tax-free rollover from IRA-A or from IRA-C into another IRA. However, you could roll funds out of IRA-B into any other IRA because you did not roll money into or out of that account within the previous year.  So the point is that once you do a rollover, do not move the same funds again for a year or else you will have an IRA rollover tax.

The restriction on IRA-to-IRA rollovers does not apply to eligible rollover distributions from an employer plan. So you can roll over more than one distribution from the same qualified plan, 403(b) or 457(b) account within a 12 month period. This restriction also does not apply to rollovers from Traditional IRAs to Roth IRAs because these types of rollover are always taxable anyway.

Same Property Rule
Many people think that you must move cash from one IRA account to the other.  But you could move shares of stock or shares of mutual funds.  To avoid the IRA Rollover tax, your rollover from one IRA or to another IRA must consist of the same property. This means that you cannot take cash distributions from your IRA, purchase other assets with the cash, and then roll those assets over into a new (or the same) IRA. If you do, you will pay the IRA Rollover tax.

Here’s how to ALWAYS AVOID an IRA Rollover Tax
If you are simply moving your IRA from one financial institution to another, use the direct transfer method. A transfer is
1) not reported to IRS
2) has one financial institution mail or electronically transfer your IRA assets to the other institution
3) avoids the sixty day and one year rules
4) always avoids the IRA rollover tax

Therefore, when moving around funds in any type of retirement account, you can avoid an IRA Rollover tax or withholding by simply never touching the funds.  Let the financial institutions handle it.