Can I Move Money From One Roth IRA to Another?
Seamlessly manage your Roth IRA. Discover how to move funds between accounts while preserving your tax-free growth and understanding key rules.
A Roth Individual Retirement Account (IRA) offers a valuable way to save for retirement, providing tax-free growth and withdrawals, provided certain conditions are met. Account holders contribute after-tax dollars, meaning contributions are not tax-deductible. Individuals often need to move Roth IRA funds as their financial needs or preferences change. It is possible to move money between Roth IRAs, offering flexibility and control over these important retirement savings.
Understanding Roth IRA Movement Options
Moving funds between Roth IRAs can be accomplished through two distinct methods. The first is a trustee-to-trustee transfer, also known as a direct transfer. This process moves funds directly from one financial institution to another without the account holder taking possession. It is generally considered the most straightforward and secure option for Roth IRA assets.
The second method is an indirect rollover, sometimes called a 60-day rollover. Here, the account holder receives funds from their current Roth IRA. The individual must then deposit the full amount into a new Roth IRA within a timeframe to avoid taxes and penalties. While offering personal control for a brief period, this method carries greater risks and stricter compliance compared to a direct transfer.
Steps for a Direct Roth IRA Transfer
Initiating a direct Roth IRA transfer begins with the new financial institution. This institution will have specific forms or an online process to facilitate the transfer. You will need to provide account numbers for both your existing and new Roth IRAs, along with contact information for both financial institutions. Gathering this information beforehand simplifies the process.
Once you provide the necessary details, the new institution ensures the funds are transferred correctly and avoids common pitfalls associated with indirect rollovers. Transfers take between five business days and four weeks, depending on whether the request is electronic or requires physical mail. You will receive notification once the transfer is processed and the assets appear in your new account.
Navigating an Indirect Roth IRA Rollover
An indirect Roth IRA rollover involves stricter rules and potential consequences if not executed precisely. The critical aspect is the 60-day rule, requiring redepositing the full distribution into a Roth IRA within 60 days of receiving funds. This 60-day period begins the day you receive the distribution, not when the check is cashed. If funds are not redeposited within this timeframe, the distribution becomes taxable income.
Missing the 60-day deadline can also trigger a 10% early withdrawal penalty if you are under age 59½, in addition to the amount being considered taxable income. The Internal Revenue Service (IRS) imposes a “one-rollover-per-year” rule, meaning you can only complete one indirect IRA-to-IRA rollover across all your IRAs within any 12-month period. This limit applies to the individual, not per account; only one indirect rollover is permitted within a 12-month span. Trustee-to-trustee transfers, however, are not subject to this limitation.
Preserving Your Roth IRA Status
Moving money between Roth IRAs, whether through a direct transfer or an indirect rollover, does not affect annual contribution limits. These movements are considered transfers or rollovers of existing assets, not new contributions. Therefore, they do not count towards the yearly maximum amount you can contribute to a Roth IRA.
The 5-year rules associated with Roth IRAs remain intact when funds are moved between accounts. The 5-year rule for contributions, which determines when qualified distributions of earnings are tax-free, starts with the tax year of your first contribution to any Roth IRA. Similarly, the 5-year rule for Roth conversions applies to each conversion, starting on January 1 of the year the conversion occurred. A transfer or rollover between Roth IRAs does not reset these timelines, ensuring your tax-free growth and withdrawal privileges are preserved.