Can I Take Money Out of My 401(k) and Put It Back in 60 Days? The Complete Guide to the 60-Day Rollover Rule

When you need money quickly, have you ever thought about taking money out of your retirement savings? You may be wondering, “Can I take money out of my 401(k) and put it back in 60 days without penalties?” The short answer is yes, but there’s a lot more you need to know before you decide to do this.

As someone who’s helped many clients navigate retirement planning decisions, I’ve seen both successful rollovers and costly mistakes. Let’s dive into everything you need to understand about the 60-day rollover rule and how it applies to your 401(k).

What Exactly is the 60-Day Rollover Rule?

The 60-day rollover rule, as updated by the IRS on August 26, 2025, says, “If a distribution from an IRA or a retirement plan is paid directly to you, you can deposit all or part of it in an IRA or a retirement plan within 60 days.” “.

This rule basically lets you take money out of your retirement account and put it back into the same account or another qualified retirement account for 60 days without having to worry about taxes or penalties. It’s sometimes called the “60-day rollover provision” or “indirect rollover. “.

Direct vs. Indirect Rollovers: Understanding the Key Differences

Before we go further it’s important to distinguish between two types of rollovers

Direct Rollover

• Funds move directly from one retirement account to another
• Money never passes through your hands
• No taxes are withheld
• The 60-day rule isn’t a factor since you never take possession of the funds

Indirect Rollover

• You receive the distribution directly (often via check or bank deposit)
• You’re responsible for depositing the money into another retirement account within 60 days
• Your plan administrator typically withholds 20% for taxes
• You must make up the withheld amount from other sources to avoid taxes on that portion

The 60-day rollover rule primarily applies to indirect rollovers, which is what we’re focusing on in this article.

How the 60-Day Rollover Actually Works

Let’s break down exactly how this process unfolds:

1. You request a distribution from your 401(k) plan
2. Your plan administrator sends you the money (minus any required tax withholding)
3. The 60-day clock starts ticking from the moment you receive the funds
4. You need to deposit the full distribution amount (including any withheld taxes) into a qualified retirement plan within 60 days
5. If done correctly, the transaction is treated as a nontaxable rollover

Why Would Someone Take Money Out for Just 60 Days?

You might be wondering why anyone would bother with this somewhat complicated process. Here are some common reasons:

• Short-term financial emergency: Maybe you need cash immediately but expect to receive money soon (like a bonus or commission)
• Bridge between home sales: You’re selling one house and buying another with timing gaps
• Temporary cash flow issues: You’re expecting a large payment but have immediate expenses
• Interest-free short-term loan: Using retirement funds temporarily without penalties

One client of mine needed to make a downpayment on a house before his previous home sold. He used the 60-day rollover to access his 401(k) funds without penalties, then replaced the money when his old house closed. It worked perfectly, but required careful timing.

The Potential Tax Nightmare: What Happens If You Miss the 60-Day Window?

This is where things get serious. If you don’t do the rollover within 60 days, the IRS counts the whole distribution as income that needs to be taxed. Furthermore, if you’re under 20%2059C2%BD, you’ll have to pay a 10%10%%20early%20withdrawal%20penalty.

Here’s an example of what could happen with a $50,000 withdrawal that isn’t properly rolled over:

That’s nearly 40% of your withdrawal gone to taxes and penalties! And that doesn’t even account for the lost future growth on those retirement funds.

The Withholding Tax Complication

Here’s a tricky part many people miss: When you take an indirect rollover, your plan administrator is usually required to withhold 20% for taxes. This creates an additional challenge.

For example, if you withdraw $20,000:

• You’ll only receive $16,000 ($20,000 minus 20% withholding)
• To complete a full rollover, you need to deposit the ENTIRE $20,000
• This means you need to come up with an additional $4,000 from other sources

If you only deposit the $16,000 you received, the remaining $4,000 will be treated as a taxable distribution, subject to taxes and potential penalties.

Can I Use This as a Short-Term Loan From My 401(k)?

Technically, you can use the 60-day rollover provision as a short-term interest-free loan from your retirement account. However, I gotta warn ya – this strategy comes with significant risks:

1. If you miss the 60-day deadline for ANY reason, you’ll face taxes and potential penalties
2. You need to account for the withholding tax issue mentioned above
3. Many retirement plans only allow one rollover per 12-month period
4. You temporarily lose any market gains that might occur during that period

If your 401(k) plan offers loan provisions, that’s usually a safer option for short-term borrowing since you have a longer repayment period and fewer tax complications.

The One-Per-Year Limitation

Another important restriction: You can only perform one IRA-to-IRA rollover per 12-month period. This rule applies separately to each IRA you own. However, it doesn’t apply to:

• Rollovers from traditional IRAs to Roth IRAs (conversions)
• Trustee-to-trustee transfers between IRAs
• Rollovers between qualified retirement plans (like 401(k)s)
• Rollovers from qualified plans to IRAs

We had one client who didn’t understand this limitation and attempted multiple rollovers within a year. The second rollover was disallowed, resulting in unexpected taxes and penalties. Don’t make this mistake!

What If I Miss the 60-Day Deadline?

Life happens. If you miss the 60-day deadline, all hope isn’t necessarily lost. The IRS does provide some relief options:

Automatic Waiver

You might qualify for an automatic waiver if:

• The financial institution made an error
• The distribution check was lost or misplaced (through no fault of yours)
• You deposited the funds within one year of the original distribution
• The rollover would have been valid if completed on time

Self-Certification

If you miss the deadline due to one of these qualifying reasons, you may be able to self-certify your eligibility for a waiver:

• Errors by the financial institution
• Distribution check was lost or never cashed
• Severe illness or death in the family
• Postal errors
• Natural disasters or other major events

Private Letter Ruling

As a last resort, you can request a private letter ruling from the IRS, though this process is expensive (currently $10,000) and has no guarantee of approval.

Safer Alternatives to the 60-Day Rollover

If you’re considering using the 60-day rollover rule, consider these potentially safer alternatives first:

1. 401(k) loan – Many plans allow you to borrow up to 50% of your balance (maximum $50,000) with up to 5 years to repay
2. Direct rollover – If you’re changing jobs or retirement accounts, always request a direct rollover
3. Emergency fund – Build a separate emergency fund specifically to avoid tapping retirement accounts
4. HELOC – A home equity line of credit might provide better terms for short-term borrowing
5. Personal loan – Depending on your credit, this might be cheaper than risking retirement funds

Step-by-Step Guide to Executing a 60-Day Rollover

If you’ve decided a 60-day rollover is right for your situation, here’s how to do it correctly:

1. Contact your plan administrator to understand their specific distribution process
2. Request the distribution and ensure you understand any tax withholding requirements
3. Mark your calendar with the 60-day deadline (and set multiple reminders)
4. Prepare additional funds to cover any tax withholding if you want a complete rollover
5. Open the new retirement account in advance (if rolling over to a new account)
6. Complete the rollover paperwork for the receiving account
7. Deposit the full distribution amount well before the 60-day deadline
8. Retain all documentation related to both the distribution and the rollover deposit

Frequently Asked Questions About 60-Day Rollovers

Can I withdraw from my 401(k) and then put it back?

For hardship withdrawals, no – once you take money out through a hardship withdrawal, you can’t put it back. However, with a 60-day rollover, you can put the money back if you do so within 60 days.

How many rollovers can I do in a year?

The IRS generally limits you to one rollover per IRA per 12-month period. However, this limit doesn’t apply to direct rollovers or trustee-to-trustee transfers.

What happens if I don’t roll over my 401(k) within 60 days?

The rollover amount will be taxed as income and may be subject to a 10% early withdrawal penalty if you’re under 59½.

Can I use the 60-day rollover rule to take a short-term loan?

Technically yes, but it’s risky. If you miss the 60-day window for any reason, you’ll face taxes and potential penalties.

Do I have to report a 60-day rollover on my taxes?

Yes, you need to report the rollover on your tax return, but if completed properly within 60 days, it won’t be taxable.

The Bottom Line: Proceed with Caution

While the 60-day rollover rule provides a potential way to temporarily access your retirement funds, it comes with significant risks and complications. For most people, other borrowing options are safer and more straightforward.

If you absolutely must use this provision, make sure you:

• Understand all the rules and restrictions
• Have a solid plan to replace the funds within the 60-day window
• Account for the tax withholding issue
• Document everything carefully
• Set multiple reminders for the deadline

Your retirement savings are too important to risk with a misstep in this process. When in doubt, consult with a financial advisor who can help you evaluate all your options and make the best decision for your specific situation.

Have you ever considered using the 60-day rollover rule? What financial circumstances would make you consider this option? I’d love to hear your thoughts in the comments below!