How to Transfer Your IRA to Another Account

An Individual Retirement Arrangement (IRA) is a tax-advantaged savings plan designed to help individuals save for retirement. Transferring an IRA involves moving funds from one IRA account to another, which can be beneficial for various reasons. Account holders often consider a transfer to consolidate multiple retirement accounts, simplifying their financial overview. Moving an IRA can also provide access to a broader range of investment options or potentially lower fees at a new financial institution. This process allows individuals to maintain the tax-deferred or tax-free status of their retirement savings while seeking better alignment with their financial goals.

Understanding IRA Transfer Methods

Individuals typically use one of two primary methods to move IRA funds: a direct rollover or an indirect rollover. A direct rollover, often called a trustee-to-trustee transfer, involves the funds moving directly from one financial institution to another without the account owner ever taking possession of the money. This method is generally preferred for its simplicity and for minimizing potential tax complications.

An indirect rollover, also known as a 60-day rollover, operates differently, as the funds are temporarily distributed to the IRA owner. The account holder receives a check or direct deposit from their current IRA custodian. The individual then has a strict 60-day window from the date of receipt to deposit the entire amount into a new or existing IRA account. Failing to re-deposit the funds within this timeframe can result in the distribution being treated as taxable income, and potentially subject to early withdrawal penalties if the individual is under age 59½.

Getting Ready for Your IRA Transfer

Before initiating an IRA transfer, gathering all necessary information and completing required documentation is important. Begin by collecting specific details from your current IRA custodian, such as your existing account number, the precise type of IRA (e.g., Traditional, Roth, SEP), and the current balance. Simultaneously, obtain the new account number and specific receiving instructions from the financial institution where you intend to move your IRA.

You will typically need to complete several forms to facilitate the transfer, often including a transfer authorization form from the new custodian and potentially a distribution request form from the old one. These forms require accurate personal details, account numbers for both the originating and receiving IRAs, and specific instructions on how the funds should be moved. Carefully review each form to ensure all fields are correctly filled out, especially concerning the type of transfer chosen.

Completing Your IRA Transfer

For a direct rollover, you will typically submit the completed transfer authorization form to your new IRA custodian. The new custodian then communicates directly with your old custodian to request the transfer of funds. This process usually involves the old custodian sending the funds directly to the new institution, often via electronic transfer or a check made payable to the new custodian for the benefit of your IRA.

The direct transfer process generally takes one to two weeks, though it can sometimes extend up to four weeks depending on the institutions involved. You will receive confirmation from both custodians once the transfer is complete. For an indirect rollover, your current IRA custodian will issue a distribution check or direct deposit to you. It is crucial to deposit the entire amount received into your new IRA account within the mandatory 60-day period to avoid tax consequences.

If your distribution included a mandatory 20% federal income tax withholding, you must still deposit the full original distribution amount into the new IRA. This means you would need to use other funds to make up for the 20% withheld amount, which you can then recover when you file your income tax return. For example, if you received a $10,000 distribution with $2,000 withheld, you must deposit $10,000 into the new IRA, using $2,000 from your other savings.

Important Tax Rules for IRA Transfers

Direct rollovers, or trustee-to-trustee transfers, are generally tax-free events and are not considered taxable income by the Internal Revenue Service (IRS). Because the funds move directly between financial institutions, they never pass through the account holder’s direct control, thus maintaining their tax-deferred or tax-free status without immediate tax consequences.

Indirect rollovers, however, involve specific tax rules that must be followed precisely to avoid taxation and penalties. The most important rule is the 60-day re-deposit requirement, meaning the distributed funds must be rolled over into another IRA within 60 calendar days to remain tax-deferred or tax-free. Failure to meet this deadline will result in the entire distribution being treated as taxable income in the year it was received, and if the account holder is under age 59½, it may also be subject to an additional 10% early withdrawal penalty.

A significant limitation for indirect rollovers from one IRA to another is the “one-rollover-per-year” rule, which dictates that you can only complete one indirect rollover from any of your IRAs in a 12-month period. This rule applies across all your IRAs, meaning if you perform an indirect rollover from one IRA, you cannot do another indirect rollover from any other IRA you own for the next 12 months. This rule does not apply to direct rollovers or rollovers from employer-sponsored plans (like a 401(k)) to an IRA. For tax reporting, distributions from IRAs, including those intended for rollover, are typically reported on Form 1099-R.

After Your IRA Transfer is Complete

After the IRA transfer process concludes, it is important to confirm that the funds have been successfully moved to the new account. You should receive statements or notifications from both your original and new IRA custodians confirming the transfer and the final balance in each account. Review these documents carefully to ensure the correct amount was transferred and that the account type is as expected.

Maintaining thorough records of your IRA transfer is also a wise practice. Keep copies of all transfer request forms, confirmation letters, and statements from both institutions for your financial records and for potential future tax reference. Finally, with your IRA now at its new home, take the opportunity to review your investment allocations within the new account, update beneficiary designations if needed, and set up online access to monitor your retirement savings effectively.