Transferring or rolling over funds from one IRA account to another isn't difficult. All you need to do is complete a request form and give it to your current IRA account provider. The Internal Revenue Service does not impose any penalties when you execute a rollover according to the rules. However, an improper rollover can make the money you take out of your old IRA account subject to income taxes and a 10 percent penalty off the top.
IRA Transfer Methods
Rollover of funds.You may withdraw funds from an IRA for transfer to another IRA account. The old account provider cuts you a check, and it is your responsibility to deposit the money in the new IRA within 60 days. If you miss this deadline, the IRS may consider the withdrawal a distribution subject to income taxes and penalties. Unless you instruct the old IRA trustee otherwise, 10 percent of the withdrawal will be withheld to cover possible taxes.
Trustee-to-trustee transfer. You can ask the trustee of your current IRA to send funds directly to the trustee of the new IRA account. With the trustee-to-trustee option, there is no tax withholding and no 60-day rule. Also, with a 60-day rollover, you only can move cash. By turning the transfer over to your trustee, you may be able to do a transfer-in-kind. The trustees of both the old and new IRAs must agree to an in-kind transfer. If they do, you can move stocks, bonds and other assets without first converting them to cash.
You can move funds between most types of IRAs. The IRS permits the following rollovers:
- Traditional IRA to traditional IRA
- Roth IRA to Roth IRA
- Traditional IRA to Roth IRA
You may not move funds from a Roth IRA to a traditional IRA.
When you transfer money from a traditional to a Roth IRA, it is called a conversion. Funds in a traditional IRA are pretax, but any money placed in a Roth must be after-tax. Consequently, you have to pay income taxes on conversions. All of the money you move out of the traditional IRA is supposed to go into the Roth, so you will need to use non-IRA cash to pay the taxes. Any IRA money you hold out for taxes may incur a 10 percent penalty.
IRA Transfer Considerations
When you take a required minimum distribution from a traditional IRA, the RMD funds may not be rolled over. Excess contributions you remove from an IRA also may not be put into another IRA account. Annual required minimum distributions must be taken out of an IRA prior to any transfers during a given year. You may make only one 60-day rollover per year. This limit does not apply to Roth conversions or to trustee-to-trustee transfers.