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Tax Guy: 4 expensive IRA rollover tax traps and how to avoid them

Doing an IRA rollover is usually a tax-smart move, because it allows you to continue to defer taxes on the amount you roll over. But our beloved Congress has laid traps for the unwary. Here’s how to avoid the four most-common tax pitfalls.

1. Circumvent weird one-IRA-rollover-per-year rule

You can take money out of an IRA and then roll it back into the same IRA or another IRA with no taxes owed, as long as you put the money back within 60 days. Great, but you can only do one of these IRA-to-IRA rollovers within any 12-month period. If you take two or more withdrawals within that period, the extra withdrawal(s) will count as taxable distributions that can trigger an income tax hit and the 10% early withdrawal penalty tax if you’re under age 59½.

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