If your IRA isn't performing as you expected, you're not stuck. Though you might not be able to take a withdrawal without penalty, you're generally eligible to roll over the money to another qualified retirement plan. If you have a traditional IRA, you can roll the money over to most other plans, including another traditional IRA, a 401(k), a 403(b) or even a Roth IRA. Roth IRAs, on the other hand, can only be rolled over to another Roth IRA.
Just because the money came out of your IRA doesn't mean you're allowed to put it back in. First, if you're taking required minimum distributions, either because you inherited the IRA or because you've reached age 70 1/2 yourself, the RMDs aren't eligible for rollover. Second, if you've contributed too much and are correcting it by removing the excess contributions and related earnings, you can't roll those over either. Otherwise, you're in the clear.
If you want to roll over a distribution, you must act relatively quickly. See, the IRS doesn't want you using a rollover as a long-term loan, so you have only 60 days from the time you took the distribution before the rollover deadline. For example, if you take a distribution from your IRA in mid-March, you must complete the rollover by mid-May, within the 60-day limit. If you miss the deadline, you can apply for a waiver that extends your time to complete the rollover, but you need extenuating circumstances. For example, if you filled out all the forms correctly but the bank made an error and deposited it into someone else's account by mistake, you're likely to qualify. But, if you hit traffic on day 60 and the bank closed, you might be out of luck. If you apply for a waiver but it's refused, you're stuck with a permanent distribution.
One-Year Waiting Period
After you roll over a distribution to or from an IRA, you can't roll over another distribution from that same account for one year. For example, say you rolled money from your traditional IRA at one bank to a traditional IRA at a second bank. Any distributions taken during that next year from either account can't be rolled over. But, if you had a third IRA, you could roll over a distribution from that account at any time.
As long as you're not using your rollover to convert to a Roth IRA, you won't owe any taxes. But, you still have to show the rollover on your tax return with either Form 1040 or Form 1040A. If you are converting, such as moving money from a traditional IRA to a Roth IRA, you have to include the conversion in your taxable income for the year. There's no special "conversion tax rate," so the income just adds to your other taxable income for the year.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."