Can I Move an IRA to a Different Investment?
An individual retirement account (IRA) is a long-term investment vehicle designed to help you accumulate income for retirement. When Congress first authorized the IRA in 1974 with the Employee Retirement Income Security Act, its intent was to provide a tax-advantaged way for those not covered by retirement plans to save money to provide for themselves when their working years were over. However, people go through transitions, and Congress has rolled out variations on the IRA theme over the years. If your circumstances change or you can get a better deal in another kind of account, it's possible to move IRA assets into other investments and types of accounts.
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Tax Treatment of IRAs
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Generally, contributions to an IRA are tax-deductible, and the money in an IRA account grows tax-deferred. There are no taxes on income generated from interest and dividends within an IRA, and there are no taxes due on any capital gains on any sales, so long as the money stays within the IRA. You can let the money accumulate, compounding interest and capital returns until the year in which you turn 70 1/2, at which time you must begin to make withdrawals and to pay the long-deferred taxes on the money in the account. These mandatory withdrawals are called required minimum distributions. If you fail to make these withdrawals, the IRS will charge you a penalty of 50 percent of the withdrawal you were supposed to take. As a general rule, you can roll retirement assets into another account with the same tax treatment --- e.g., tax deferral, withdrawals taxed as income --- with no tax consequences.
Withdrawal Provisions
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Withdrawals from IRAs in retirement are normally fully taxable at ordinary income rates, though there's an exception if you made nondeductible IRA contributions to the account. Assets in IRAs don't qualify for capital gains treatment. If you make a withdrawal, or distribution, prior to age 59 1/2, the IRS levies an additional 10 percent penalty on the amount you withdraw, in addition to the income tax, unless you qualify for a hardship withdrawal, are paying for college expenses or are withdrawing up to $10,000 to make a down payment on a first-time home purchase for yourself or an immediate family member. For more information on hardship withdrawals, see IRS Publication 590 --- Individual Retirement Accounts. Generally, you must roll retirement assets into other accounts that have similar restrictions on withdrawals, or pay a tax bill on the rollover.
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Rollovers Within the IRA
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If you want to keep your money inside a retirement account, you have a number of options: You can exchange funds, annuities or stocks an unlimited number of times within your IRA without incurring a tax penalty, though you may incur certain transaction costs, including commissions or other trading costs. You may also incur a new surrender charge period on any annuities you purchase within your IRA. This is a deferred sales charge, assessed when you surrender your annuity within a certain number of years.
Rollovers to Other Retirement Accounts
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You may roll assets within an IRA over to another retirement account simply by filling out the appropriate forms with the new IRA custodian or its sales representative or agent. You can roll your IRA into another IRA, or a workplace 401k or 403b. You can also convert your IRA into a Roth IRA by paying income tax on the transaction. You may want to pay any taxes due at conversion with money from outside of the IRA to preserve as much of the tax benefit of the Roth IRA account as possible. Roth IRA contributions aren't tax-deductible, but assets within Roth accounts grow tax-free, and withdrawals are tax-free in retirement, provided the money has been in the account at least five years and you're age 59 1/2 or older.
Considerations
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If you believe you'll be in a higher marginal tax bracket in your retirement years than you are now, you may wish to consider rolling over to a Roth IRA --- essentially locking in today's income tax rates. You may also want to consider diversifying your retirement assets between taxable income such as IRAs and pensions and nontaxable income such as Roth accounts and permanent life insurance. This may help you lower your overall effective tax bracket and potentially avoid earning so much taxable income that your Social Security benefits become taxable as well.
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