GroundSkill
Classify plan distributions, rollovers, charitable distributions, and conversions
Money leaves retirement accounts in several ways, and the path it takes decides the tax. A payment moved between retirement accounts stays in the system. A payment sent straight to charity can leave income entirely. A payment moved from a traditional account to a Roth account settles its tax now. This lesson teaches how to classify each movement, how a charitable distribution qualifies for exclusion, and how the taxable part of a conversion is figured.
Classification starts with where the money went and how fast. A tax-free reinvestment from one qualified plan into another plan or the same plan is a rollover. Generally, the rollover must be completed within 60 days of receiving the distribution, and the IRS may waive the 60-day requirement where missing it would be against equity or good conscience. The payment method changes withholding: an eligible rollover distribution paid to the participant generally carries 20% withholding, while no tax is withheld when the administrator pays it directly to the other plan or IRA. Not every payment is eligible for rollover: required distributions are not eligible for rollover treatment, and the exceptions to eligible-rollover treatment include a hardship distribution, among other listed payments.
Only one IRA-to-IRA rollover is allowed in any 1-year period no matter how many IRAs are owned; trustee-to-trustee transfers between IRAs and traditional-to-Roth conversions are not limited.
Amounts not rolled over keep their character: pre-tax money included in income, after-tax money treated as basis as IRA Basis and Roth Treatment explains.
Report it as follows: the total distribution is entered on Form 1040 line 5a as shown in box 1 of Form 1099-R; after-tax contributions usually shown in box 5 are subtracted, then any amount rolled over directly or within 60 days, and the remainder — even if zero — is entered on line 5b. A direct rollover is marked with code G.
| Movement | Result |
|---|---|
| Direct administrator payment to another plan or IRA | Direct rollover, no withholding |
| Payment to the owner, fully reinvested within 60 days | Rollover |
| Payment to the owner, kept | Taxable distribution to the extent includible |
Tina's $20,000 401(k) distribution is paid to her on March 1. Because the check comes to her, the plan withholds 20%, $4,000, and sends a $16,000 check. On March 31 she deposits $20,000 into a traditional IRA: the $16,000 plus $4,000 of her own savings to replace what was withheld. The reinvestment lands inside 60 days, so the full $20,000 is a rollover, nothing stays in income, and the $4,000 withheld is credited as tax paid on her return. Had she deposited only the $16,000, the $4,000 she did not roll over would be taxable. Had she instead asked for a direct administrator-to-IRA payment, no withholding would have applied at all.
Form 5329 Instructions Page 2
you must complete the rollover within 60 days of receiving the distributionView on the source
Publication 575 Page 10
tax won’t be withheld if you have the plan administrator pay the eligible rollover distribution directly to another qualified plan or an IRA in a direct rolloverView on the source
Publication 590-A Page 22
The IRS may waive the 60-day requirement where the failure to do so would be against equity or good conscience, such as in the event of a casualty, a disaster, or another event beyond your reasonable control.View on the source
Publication 590-A Page 25
Amounts that must be distributed during a particular year under the required distribution rules (discussed in Pub. 590-B) aren’t eligible for rollover treatment.View on the source
Publication 590-A Page 25
Generally, an eligible rollover distribution is any distribution of all or part of the balance to your credit in a qualified retirement plan except the following.View on the source
Publication 590-A Page 26
A hardship distribution.View on the source
Publication 590-A Page 25
You can make only one rollover from an IRA to another (or the same) IRA in any 1-year period regardless of the number of IRAs you own.View on the source
Publication 590-A Page 25
However, trustee-to-trustee transfers between IRAs aren’t limited and rollovers from traditional IRAs to Roth IRAs (conversions) aren’t limited.View on the source
Publication 575 Page 24
Enter the total distribution (before income tax or other deductions were withheld) on Form 1040, 1040-SR, or 1040-NR, line 5a. This amount should be shown in box 1 of Form 1099-R.View on the source
Publication 575 Page 24
From this amount, subtract any contributions (usually shown in box 5 of Form 1099-R) that were taxable to you when made.View on the source
Publication 575 Page 24
From that result, subtract the amount that was rolled over either directly or within 60 days of receiving the distribution. Enter the remaining amount, even if zero, on Form 1040, 1040-SR, or 1040-NR, line 5b.View on the source
Publication 590-B Page 21
G—Direct rollover of a distribution to a qualified plan, a section 403(b) plan, a governmental section 457(b) plan, or an IRA.View on the source
Which of the following is true regarding a direct trustee-to-trustee transfer from a qualified plan to a traditional IRA?
A qualified charitable distribution is the one payment that can leave a traditional IRA without entering income at all. It follows a fixed pattern: the owner is at least age 70 1/2, the trustee pays the amount directly to a qualified charity, and the excluded amount sits within the $108,000 annual cap each spouse holds separately — if a joint return is filed, each spouse can have a QCD and exclude up to $108,000. The excluded part is the share that would otherwise be includible in income, so an account holding basis excludes its pre-tax share first. Deductible IRA contributions for years the owner is age 70 1/2 or older then shrink the exclusion: the excludable QCD is reduced by post-70 1/2 deducted contributions not already used to reduce an earlier QCD. A completed QCD also counts toward the owner's required minimum distribution, and no charitable deduction is claimed for the excluded amount.
Amy, 75, directs her IRA trustee to pay $25,000 straight to a qualified charity. Her account holds $20,000 of deductible contributions and earnings plus $10,000 of basis. The direct payment at a qualifying age fits the pattern, so the $20,000 otherwise-includible share is a QCD and leaves income. The remaining $5,000 represents basis coming out alongside it and is handled on Form 8606. Had Amy taken the check herself at 68 and forwarded it, neither the age nor the direct-payment condition would be met.
Publication 590-B Page 14
The maximum annual exclusion for QCDs is $108,000.View on the source
Publication 590-B Page 14
A QCD will count towards your required minimum distribution, discussed earlier.View on the source
Publication 590-B Page 14
If you file a joint return, your spouse can also have a QCD and exclude up to $108,000.View on the source
Publication 590-B Page 14
You can't claim a charitable contribution deduction for any QCD not included in your income.View on the source
Publication 590-B Page 14
the amount of QCDs that you can exclude from income is reduced by the excess of the aggregate amount of IRA contributions you deducted for the taxable year and any prior year that you were age 701/2 or older over the amount of the IRA contributions that were used to reduce the excludable amount of QCDs in all earlier years.View on the source
Publication 590-B Page 14
After the distribution, her basis in her IRA is $5,000.View on the source
Which of the following is true regarding a trustee payment from a traditional IRA directly to a qualified charity by an owner under age 70 1/2?
A conversion moves money from the pre-tax side to the after-tax side, so the tax postponed for years comes due in the conversion year. The taxable amount is the pre-tax share: deductible contributions plus earnings. Basis on record moves across without tax and becomes part of the Roth balance going forward. The conversion is reported on Form 8606, and unlike an early distribution it does not draw the 10% additional tax for the converted amount itself.
Paul's traditional IRA holds $30,000 with $6,000 of basis. He converts the whole account to Roth. The $6,000 basis crosses over tax free and the $24,000 pre-tax share is included in income for the conversion year. His preparer reports the conversion on Form 8606. Converting only $10,000 instead would include a proportional pre-tax share of that $10,000 rather than selecting only basis.
Form 5329 Instructions Page 2
You must include in your gross income distributions from a qualified retirement plan that you would have had to include in income if you hadn’t rolled them into a Roth IRA.View on the source
Form 8606 Instructions Page 2
You converted an amount from a traditional IRA to a Roth IRA in 2025.View on the source
Form 5329 Instructions Page 3
The additional tax on early distributions doesn’t apply to any of the following.View on the source
Form 5329 Instructions Page 3
A distribution from a traditional IRA that was converted to a Roth IRA.View on the source
Which of the following is true regarding a $30,000 traditional-to-Roth conversion by an owner under age 59 1/2 where the traditional IRA holds only pre-tax amounts?
The course asks you questions like these as you learn, brings back the ones you miss, and ends with full-length practice exams.
See the course Or take the free 12-question checkGroundSkill is independently produced and is not affiliated with or endorsed by the IRS. Sources last checked 2026-09-14. Exam preparation, not tax advice.