Can I Move Money From One IRA to Another?

An Individual Retirement Arrangement (IRA) is a tax-advantaged savings vehicle for retirement. These accounts offer tax benefits like tax-deductible contributions or tax-free growth and withdrawals, depending on the IRA type. Individuals move funds between IRAs to consolidate accounts, seek better investments, or reduce fees. This process requires specific methods and adherence to Internal Revenue Service (IRS) regulations to maintain the tax-advantaged status. Understanding these transfer methods is important for managing retirement assets.

Types of IRA Fund Movements

Moving funds between IRAs can occur through several methods.

Trustee-to-Trustee Transfer

A trustee-to-trustee transfer directly moves funds from one IRA custodian to another. The account holder never takes possession of the money. This method is often preferred for its simplicity and reduced risk, as funds transfer electronically or via check made payable directly to the new institution. The account holder initiates this by instructing the new IRA custodian, who coordinates with the old custodian.

Direct Rollover

A direct rollover typically applies when moving funds from an employer-sponsored retirement plan, like a 401(k), directly into an IRA. The distribution check from the employer plan is made payable to the new IRA custodian, not the individual. The account holder forwards the check to the new IRA provider for deposit. This keeps funds within a qualified retirement plan without immediate taxation.

Indirect Rollover (60-Day Rollover)

An indirect rollover, also known as a 60-day rollover, involves the account holder receiving the retirement funds directly. The former custodian issues a check or electronic transfer to the individual. The individual then has 60 calendar days from receipt to deposit the funds into a new IRA or another qualified retirement plan. Missing this deadline can lead to significant tax consequences and penalties.

Roth Conversion

A Roth conversion moves pre-tax funds from a Traditional IRA into a Roth IRA. Unlike other movements, a Roth conversion changes the tax treatment of the assets. The converted amount becomes taxable income in the year of conversion. However, future qualified withdrawals from the Roth IRA are entirely tax-free. This can benefit those who anticipate being in a higher tax bracket during retirement or wish to diversify their retirement income.

Rules Governing IRA Movements

Several rules govern IRA fund movements to ensure tax compliance.

60-Day Rollover Rule

Funds received in an indirect rollover must be deposited into another qualified retirement account within 60 calendar days from the distribution date. Failure to meet this deadline generally results in the entire distribution being treated as a taxable withdrawal, subject to ordinary income tax and potentially a 10% early withdrawal penalty if the account holder is under age 59½.

One-Rollover-Per-Year Rule

This rule limits indirect rollovers between IRAs. An individual can complete only one indirect rollover from any of their IRAs to any other IRA within a 12-month period. This restriction applies to the individual, not to each IRA. This rule does not apply to trustee-to-trustee transfers or direct rollovers from employer-sponsored plans.

Required Minimum Distributions (RMDs)

Amounts distributed as RMDs cannot be rolled over. If an individual is subject to RMDs for a year, they must first satisfy their RMD obligation from an IRA. The RMD portion of a distribution is considered taxable income and cannot be contributed to another IRA or qualified plan. Calculate and take the RMD amount before initiating any rollover from that IRA.

Inherited IRAs

Moving funds from inherited IRAs has more restrictive rules than personal IRAs. Beneficiaries generally cannot roll over inherited IRA funds into their own personal IRA. The funds must typically remain in an inherited IRA, often called a beneficiary IRA, and are subject to specific distribution rules. A surviving spouse, however, usually can treat an inherited IRA as their own, allowing standard rollover rules to apply.

Tax Implications of IRA Movements

The tax consequences of moving IRA funds vary by method.

Non-Taxable Movements

Trustee-to-trustee transfers and direct rollovers are generally non-taxable events when executed correctly. Funds remain within the qualified retirement system and do not trigger income tax or penalties. Financial institutions ensure proper handling and reporting, maintaining the assets’ tax-deferred or tax-exempt status.

Taxable Indirect Rollovers

Indirect rollovers risk taxation if the 60-day deadline is not met. If funds are not redeposited within this timeframe, the entire distribution becomes taxable as ordinary income in the year received. For individuals under age 59½, a failed rollover also triggers a 10% early withdrawal penalty on the distributed amount, in addition to regular income tax. This penalty is imposed by the IRS to discourage premature distributions from retirement accounts.

Roth Conversion Taxation

A Roth conversion, moving funds from a Traditional IRA to a Roth IRA, is a taxable event. The converted pre-tax amount is added to the individual’s gross income for that year and is subject to ordinary income tax rates. While this immediate tax liability exists, all qualified withdrawals from the Roth IRA in retirement, including earnings, are entirely tax-free. If non-deductible contributions were made to the Traditional IRA, a portion of the conversion may be tax-free.

IRS Reporting

Financial institutions report IRA distributions and contributions to the IRS. For distributions, including rollovers or conversions, a Form 1099-R is typically issued. For contributions and IRA fair market value, a Form 5498 is provided. These forms help taxpayers and the IRS track retirement account activity for tax purposes.

Executing an IRA Fund Movement

Initiating an IRA fund movement begins by contacting the new IRA custodian, the financial institution where you intend to move your funds. This institution will serve as the receiving entity for your retirement assets. They will provide the necessary forms and guidance to facilitate the transfer or rollover process. This ensures the new custodian can properly set up the receiving account and coordinate with your current institution.

Required Information

The new custodian will require specific information to complete paperwork. This includes your existing IRA account number, current custodian’s name and contact details, and the amount or assets you wish to move. You will complete forms authorizing the transfer and specifying the movement type. These forms serve as official instructions to both financial institutions.

Selecting a Movement Method

When completing forms, select your preferred fund movement method. For a direct transfer between IRAs, specify “trustee-to-trustee transfer” to move funds directly. If rolling over funds from an employer plan, indicate a “direct rollover” for the check to be payable to the new custodian. For an indirect rollover, you receive the funds and deposit them into the new account within 60 days.

Follow-Up and Considerations

After submitting forms, follow up with both custodians to track the transfer’s progress. Confirming funds’ receipt at the new institution is important for your records. The process typically takes several business days to a few weeks, depending on the complexity of the transfer and the institutions involved. Be aware of any potential fees charged by either custodian for transfers or account closures, which can range from a nominal amount to over $100. Ensure all paperwork is accurately completed to minimize delays. Retain copies of all submitted forms and transfer confirmations for your records and tax compliance.