You've finally decided to move that old 401(k) from your first job into an IRA. It feels like a win. But then, a nagging thought hits you while you're staring at the transfer screen: "Wait, does this $50,000 move mean I can't put any more money into my retirement account this year?" It's a fair question. Honestly, the tax code is written in a way that makes everything feel like a potential trap.
The short answer? No. Do IRA rollovers count as contributions? No, they don't.
Basically, the IRS views these as two completely different animals. A contribution is new money coming out of your pocket. A rollover is just "old" retirement money changing its address. You aren't adding to the pile; you're just moving the pile to a better spot.
The Core Difference Between Moving and Adding
Think of it like a bucket of water. A contribution is you taking a pitcher and pouring fresh water into the bucket. A rollover is just taking the water that was already in a blue bucket and pouring it into a red one. The IRS only limits how much new water you can pour in each year.
For the 2026 tax year, the IRS has set the annual IRA contribution limit at $7,500. If you are age 50 or older, you get a "catch-up" boost, bringing your limit to $8,600. These numbers are a slight bump from the 2025 limits ($7,000 and $8,000, respectively).
Now, here is where people get tripped up. You could roll over a $500,000 401(k) into a Traditional IRA tomorrow. That $500,000 does not touch your $7,500 limit. You can still write a check for $7,500 and drop it into that same account (or a different one) as a fresh contribution.
Why the confusion exists
It's mostly semantics. Both involve money going into an IRA. When you look at your bank statement, they both might even show up as "deposits." But on your tax forms, they live in different neighborhoods. Rollovers are reported using Form 1099-R and Form 5498, but they don't count against that annual ceiling.
Do IRA Rollovers Count As Contributions When You Mix Funds?
Some folks worry about "commingling." This is a fancy way of saying you put your rollover money and your new contribution money in the same account.
Years ago, financial advisors used to tell everyone to keep "Rollover IRAs" separate from "Contributory IRAs." The reason? Some employer 401(k) plans wouldn't let you roll money back into them if you had mixed in personal contributions.
Today? Most modern plans don't really care. However, if you think you might want to move your IRA balance into a future employer's 401(k) down the road, keeping them separate is still a "cleaner" move. It’s not a law, just a way to avoid a headache later.
The 60-Day Scramble
While rollovers don't count as contributions, the way you move the money matters immensely. If you do a "Direct Rollover," the money goes straight from one institution to the other. You never touch it. This is the gold standard.
But if you do an "Indirect Rollover," the old provider sends a check to you. You then have 60 days to get that money into the new IRA. If you miss that window by even one day, the IRS suddenly stops calling it a rollover. They call it a distribution.
If that happens:
- You owe income tax on the whole amount.
- You might owe a 10% early withdrawal penalty if you're under 59 ½.
- You can't just put it back in later because then it would count as a contribution—and you’d likely blow past your $7,500 limit, triggering more penalties.
Surprising Nuances: One Rollover Per Year
There is a weird rule that catches people off guard. You are generally only allowed one indirect (60-day) rollover in any 12-month period. This limit applies to all your IRAs combined.
Wait. Let me clarify that.
If you take a check from IRA A and deposit it into IRA B, you can't do that again with any of your IRAs for another 365 days. If you try, that second "rollover" will be treated as a regular contribution. And since most rollovers are way bigger than the $7,500 limit, you’ll be hit with an "excess contribution" penalty of 6% every single year until you fix it.
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The loophole? Direct, trustee-to-trustee transfers. You can do as many of those as you want. There is no limit. Always, always go the direct route if you can. It’s safer and involves zero math.
Real-World Example: The "Job Hopper" Scenario
Let's look at Sarah. She’s 32 and just started a new gig. She has $15,000 in her old 401(k).
Sarah opens a new IRA and initiates a direct rollover of the full $15,000. Two weeks later, she decides she wants to maximize her savings for 2026. She contributes $7,500 from her savings account into the same IRA.
Is she in trouble? Not at all. Her total balance is now $22,500. Even though she put way more than the "limit" into the account this year, the IRS sees $15,000 as a rollover (neutral) and $7,500 as a contribution (maxed out). She's perfectly within the rules.
Reporting This to the IRS
When tax season rolls around, you’ll get a Form 1099-R from the company that sent the money and a Form 5498 from the company that received it.
You must report the rollover on your Form 1040. You'll put the total amount on the line for "IRA distributions," but then you'll enter "0" for the taxable amount and write "Rollover" next to it. This tells the IRS, "Hey, I moved this money, but don't tax me because it stayed in the system."
If you forget this step, the IRS might assume you spent the money on a boat and send you a very scary letter asking for their cut.
Nondeductible Contributions and Backdoors
Just a quick side note for high earners: If you're doing a "Backdoor Roth IRA," you're making a nondeductible contribution to a Traditional IRA and then immediately converting it to a Roth.
The contribution part of that process absolutely counts toward your $7,500 limit. The conversion part (the move from Traditional to Roth) is treated similarly to a rollover and does not have a dollar limit.
Actionable Next Steps
If you are planning to move money soon, keep these steps in mind to stay on the right side of the law:
- Request a Direct Transfer: Tell your current plan administrator you want a "Trustee-to-Trustee" transfer. This avoids the 60-day clock and the one-rollover-per-year rule.
- Check the Year: Ensure any personal contributions you make stay under the $7,500 limit (or $8,600 for 50+) for 2026.
- Keep Paperwork: Save your 1099-R and 5498. You'll need them to prove to the IRS that the big deposit into your account wasn't a taxable event.
- Mind the Withholding: If you do an indirect rollover from a 401(k), the employer is legally required to withhold 20% for taxes. To complete the rollover, you have to come up with that 20% out of your own pocket to deposit into the IRA, then wait to get it back as a tax refund. It's a mess—avoid it by sticking to direct rollovers.
Understanding that rollovers and contributions live in two separate worlds is the key to moving large sums of money without fearing the taxman. You can consolidate your accounts and still keep building your "new" savings at the same time.