What Is the 60-Day Rule for IRAs? Complete Guide for Construction Financing
The 60-day rule for IRAs is one of the most powerful yet misunderstood provisions in retirement account regulations. This IRS rule allows you to take a distribution from your IRA and, as long as you redeposit the funds into the same or another eligible retirement account within 60 calendar days, avoid both taxes and early withdrawal penalties. For construction investors and developers, this creates a potential short-term bridge financing opportunity, but the stakes are high and the deadline is absolute.
Understanding the 60-day rollover rule is essential before considering it for construction financing. One missed deadline or procedural error can cost tens of thousands of dollars in unexpected taxes and penalties, turning a financing strategy into a retirement disaster. This guide explains exactly how the rule works, when it makes sense for construction projects, and why traditional financing often provides a safer path.
At Clear House Lending, we help construction borrowers understand all their financing options, including when tapping retirement funds is appropriate versus when professional lending solutions better serve your goals.
60-Day IRA Rollover Rule Key Numbers
These critical thresholds define the 60-day rollover rule. The 60-day window is measured in calendar days, not business days, and includes weekends and holidays. Understanding each number helps you evaluate whether this strategy fits your construction timeline.
How the 60-Day Rollover Rule Works
The 60-day rollover rule exists to give IRA owners flexibility in moving retirement funds between accounts. When you take a distribution from your IRA, the IRS does not immediately classify it as a withdrawal. Instead, you have a 60-day grace period to complete a rollover, which treats the transaction as a tax-free transfer rather than a taxable distribution.
The Basic Mechanics
The process works as follows:
Step 1: Request a Distribution Contact your IRA custodian and request a distribution from your account. You can take any amount up to your full balance. For Traditional IRAs, the custodian will typically withhold 20% for federal income taxes unless you specifically request otherwise through a direct rollover to another institution.
Step 2: Receive the Funds Your custodian sends you the distribution, typically via check or electronic transfer. The 60-day clock starts on the day you receive the funds, not when you request them.
Step 3: Use the Funds (Optional) During the 60-day window, you have complete control over the money. You can deposit it in a bank account, use it for construction costs, invest it elsewhere, or simply hold it. The IRS does not restrict how you use the funds during this period.
Step 4: Complete the Rollover Before the 60th calendar day expires, you must deposit the full original distribution amount into an eligible retirement account. This can be the same IRA you took it from, a different IRA, or even a qualified employer plan that accepts rollovers.
Step 5: Report the Transaction Even though no tax is due on a completed rollover, you must report the distribution and rollover on your tax return using Form 1040 and Form 8606 (for non-deductible contributions).
The Critical Withholding Problem
One of the biggest challenges with the 60-day rollover for construction financing involves the mandatory 20% withholding on Traditional IRA distributions. When you take $100,000 from your Traditional IRA, your custodian sends you only $80,000 and forwards $20,000 to the IRS.
To complete a full rollover and avoid any taxable distribution, you must deposit $100,000 back into an IRA within 60 days, not just the $80,000 you received. This means you need an additional $20,000 from other sources to make up the difference.
The good news: you will recover that $20,000 when you file your tax return, as it becomes a credit against taxes owed or a refund. The bad news: you need those funds available during the 60-day window, which can create cash flow challenges for construction projects.
60-Day IRA Rollover Timeline for Construction
This timeline illustrates how construction investors might use the 60-day window. The strategy works best when you have a confirmed funding source that will arrive within the window, allowing you to bridge a short-term gap without permanent retirement account impact.
The One-Rollover-Per-Year Limitation
Perhaps the most overlooked aspect of the 60-day rule is the one-rollover-per-year limitation. Since 2015, the IRS has enforced a rule that you can complete only one IRA-to-IRA rollover in any rolling 12-month period. This rule applies across all your IRAs, not per account.
How the Limitation Works
If you complete a 60-day rollover from your Traditional IRA in March, you cannot complete another IRA-to-IRA rollover until the following March. If you attempt a second rollover within that 12-month period, the entire distribution becomes taxable income plus a 10% early withdrawal penalty if you are under age 59.5.
What Counts Toward the Limit
The one-per-year rule applies to:
- Traditional IRA to Traditional IRA rollovers
- Roth IRA to Roth IRA rollovers
- Any combination of IRA-to-IRA rollovers
The rule does not apply to:
- Direct trustee-to-trustee transfers (where you never receive the funds)
- Rollovers from employer plans (401(k), 403(b)) to IRAs
- Rollovers from IRAs to employer plans
- Roth conversions (Traditional IRA to Roth IRA)
Construction Financing Implication
For construction projects spanning multiple phases, the one-rollover-per-year rule severely limits your ability to use this strategy repeatedly. You cannot take a distribution for land purchase in January, complete the rollover in March, then take another distribution for construction in June. The second distribution would be permanently taxable.
60-Day Rollover vs. Other IRA Access Methods
This comparison helps you evaluate whether the 60-day rollover is your best option for accessing retirement funds for construction. Each method has distinct advantages and limitations that make it suitable for different situations.
What Happens If You Miss the 60-Day Deadline?
The consequences of missing the 60-day deadline are severe and largely unavoidable. Unlike many IRS deadlines that can be extended with proper documentation, the 60-day rollover window is treated as absolute in most circumstances.
Immediate Tax Consequences
If you fail to complete the rollover within 60 days:
Taxable Distribution: The entire distribution amount becomes taxable income in the year you received it. For a $100,000 distribution in the 24% federal bracket, that is $24,000 in federal income tax alone, plus any applicable state taxes.
Early Withdrawal Penalty: If you are under age 59.5, an additional 10% penalty applies to the taxable amount. On $100,000, that is another $10,000.
Lost Retirement Savings: Beyond the immediate tax cost, you permanently lose that money from your retirement savings, including all future tax-advantaged compound growth.
Cost of Missing the 60-Day Deadline
This chart illustrates the financial impact of missing the 60-day deadline on a $100,000 distribution. The difference between completing the rollover on time and missing by one day can exceed $34,000 in taxes and penalties for investors under age 59.5.
Very Limited Exceptions
The IRS grants waivers to the 60-day rule only in extraordinary circumstances, including:
- Financial institution errors (the bank made a mistake)
- Postal errors (certified mail was lost or delayed)
- Death, disability, hospitalization, or incarceration
- Restrictions imposed by foreign countries
- Natural disasters declared by FEMA
You must apply for a waiver by requesting a Private Letter Ruling from the IRS, which costs over $10,000 in filing fees and takes months to process. The IRS does not grant waivers for construction delays, financing falling through, or simple forgetfulness.
When the 60-Day Rule Works for Construction Financing
Despite the risks, certain construction scenarios align well with the 60-day rollover strategy.
Short-Term Bridge Financing
The 60-day rollover can effectively bridge timing gaps in construction financing. Examples include:
- Closing on land while waiting for construction loan approval
- Covering construction draws while permanent financing processes
- Funding a contractor deposit before your construction loan funds
- Managing cash flow gaps during the transition from construction to permanent financing
The key requirement is certainty: you must have a guaranteed funding source that will arrive within 60 days to replace the IRA distribution.
Down Payment Supplement
If you are short on down payment for a construction loan and have a defined source of additional funds coming within 60 days (such as a bonus, property sale, or other investment maturity), the rollover can bridge that gap temporarily.
Opportunity Purchases
When a land or property opportunity requires fast action but your construction financing needs more time to arrange, the 60-day rollover can secure the purchase while permanent financing closes.
When the 60-Day Rule Does NOT Work for Construction
Many construction financing scenarios are incompatible with the 60-day rule's constraints.
Extended Construction Timelines
Construction projects typically take 6 to 18 months or longer. If you need retirement funds for ongoing construction costs throughout the build, the 60-day window provides no help. You cannot repeatedly tap your IRA each month due to the one-rollover-per-year rule.
Uncertain Funding Sources
If your plan to replace the IRA funds depends on uncertain outcomes, such as selling another property, securing financing approval, or completing the project on time, the 60-day rollover is dangerously risky. Construction delays are common, and any complication that pushes your replacement funds past day 60 results in permanent tax consequences.
Amounts That Strain Your Finances
If withdrawing $80,000 (after 20% withholding) but needing to redeposit $100,000 would strain your other financial resources, the strategy creates dangerous exposure. You must have the full amount available for redeposit regardless of what happens with your construction project.
Warning: The 60-Day Rule Has No Extensions
This strategy should be used only when you have absolute certainty about your replacement funding timeline. For most construction financing needs, traditional lending products provide safer and more flexible solutions.
Alternatives to Using the 60-Day Rollover for Construction
Before risking your retirement security on the 60-day rollover, consider financing alternatives designed specifically for construction projects.
Construction Loans
Purpose-built construction loans provide phased funding that matches your project timeline. Lenders disburse funds in draws as construction progresses, eliminating the need for large upfront capital. Use our commercial mortgage calculator to estimate payments and compare options.
DSCR Loans for Investment Properties
If you are building rental property, DSCR loans qualify borrowers based on property income rather than personal income. These programs can fund construction without depleting retirement accounts and often offer more flexible qualification criteria.
Bridge Financing
Professional bridge loans provide short-term capital specifically designed for real estate transactions. While they carry higher interest rates than permanent financing, they provide predictable terms without the risk of missing a 60-day deadline and triggering permanent tax consequences.
Home Equity Lines of Credit
If you own other property with equity, a HELOC can provide flexible construction funding without touching retirement accounts. Interest may be tax-deductible, and there is no 60-day deadline creating artificial pressure.
Construction-to-Permanent Loans
One-time-close construction loans combine construction and permanent financing into a single application, reducing the timing gaps that might otherwise tempt you to use retirement funds as a bridge.
Protecting Yourself If You Use the 60-Day Rollover
If after weighing the risks you decide the 60-day rollover fits your construction financing needs, take these protective steps.
Build in a Buffer
Do not wait until day 58 to initiate your rollover deposit. Build in at least a 5-7 day buffer to account for processing times, weekends, and potential complications. Treat day 50 as your internal deadline.
Document Everything
Keep detailed records of:
- The distribution request date and amount
- The date you received the funds
- Bank statements showing the deposit
- The rollover deposit date and confirmation
- Written loan commitments or sale contracts for your replacement funds
Confirm Your Replacement Funding
Before taking the distribution, get written confirmation of when your replacement funds will be available. A verbal assurance is not sufficient when tens of thousands of dollars in taxes and penalties are at stake.
Use a Direct Rollover When Possible
If you are simply moving funds between IRA accounts and do not need the money temporarily, use a direct trustee-to-trustee transfer instead. This avoids the 20% withholding and the one-per-year limitation, providing much greater flexibility.
Consult Tax Professionals
Given the complexity and consequences of the 60-day rule, consult a CPA or tax advisor before executing any rollover strategy for construction financing. The cost of professional advice is minimal compared to the potential tax consequences of a misstep.
Frequently Asked Questions About the 60-Day Rule
Can I do multiple 60-day rollovers in the same year? No. The one-rollover-per-year rule limits you to a single IRA-to-IRA rollover in any 12-month period across all your IRAs.
Does the 20% withholding count toward the 60-day deadline? No. You must deposit the full original distribution amount within 60 days. The withheld amount becomes a tax credit when you file your return.
What if day 60 falls on a weekend or holiday? The deadline is not extended. If day 60 falls on a Saturday, your rollover must be complete by Friday.
Can I roll over to a different type of IRA? You can roll over Traditional IRA funds to another Traditional IRA, or Roth IRA funds to another Roth IRA. Rolling Traditional to Roth is a conversion, not a rollover, and triggers taxes on the converted amount.
Does this rule apply to 401(k) plans? The 60-day rule applies to 401(k) distributions rolled to IRAs, but 401(k) plans also offer direct loan provisions that provide more flexibility than IRA rollovers.
Ready to Explore Construction Financing Options?
The 60-day rule for IRAs offers a legitimate way to access retirement funds temporarily for construction bridge financing, but the risks are substantial. Missing the deadline by a single day, miscalculating your replacement funding, or using the strategy more than once per year can trigger permanent tax consequences that far exceed any short-term benefit.
At Clear House Lending, we specialize in construction financing solutions that do not put your retirement at risk. Our lending specialists can help you understand the true cost comparison between IRA strategies and professional construction loans.
Contact us today to discuss your construction project and financing goals. We will help you evaluate whether the 60-day rollover makes sense for your situation or whether traditional construction financing provides a safer, more flexible path forward.
Ready to explore your options? Apply online to start the pre-qualification process, or use our commercial mortgage calculator to model different financing scenarios for your build.
Thinking about using the 60-day rollover for construction? Before putting your retirement at risk, explore professional financing alternatives. DSCR loans can fund investment property construction without personal income documentation, while bridge loans provide short-term capital designed for real estate timing gaps. Let Clear House Lending help you build without gambling your retirement security.