I know the Internal Revenue Service restricts the number of individual retirement account transactions permitted in a single year. In retirement, I plan several yearly IRA transactions to refill my draw bucket. Is the IRS restriction one per calendar year, or every 12 months? Are any IRA transactions not subject to restriction? What's the penalty for violating the restriction?
Not to worry. The rule you’re talking about won't affect your plan to periodically transfer IRA money from longer-term investments into a short-term investment like a money market fund — aka a "draw bucket" — from which to pay your bills. It applies only to 60-day IRA rollovers.
There’s no limit on direct, trustee-to-trustee transfers from one IRA custodian to another, or on Roth conversions, rollovers between an IRA and an employer-sponsored retirement plan, or transfers between investments inside an IRA.
In a 60-day IRA rollover, you take an IRA distribution but you don't owe taxes on that distribution because within 60 days, you redeposit the entire amount in an IRA. You can use this grace period to replace an IRA distribution that you took by mistake. You can also use the rollover as a 60-day personal loan.
Previously, the IRS allowed one 60-day rollover per year per IRA account. The unintended result was that some people with multiple IRA accounts strung rollovers together, effectively creating a stream of tax-free personal loans that lasted much longer than 60 days. The IRS didn't like that. The current rule limits you to one IRA rollover every 12 months no matter how many accounts you have. Any rollover that exceeds the limit is taxable; and if you redeposit it in an IRA, it’s an excess contribution, subject to a 6 percent annual penalty until withdrawn.
The bottom line
The IRS allows only one IRA rollover per year.