What is an IRA transfer?
It's a lot easier to invest with confidence when you have the freedom to move your money around retirement accounts.
Over time, you might find the Individual Retirement Account (IRA) investment choices that made sense when you opened the account aren't working as well for you now. An IRA transfer is simply the process of moving funds between IRAs.
Why transfer an IRA?
You may want to move to a different type of investment, choose an investment that better fits your current needs and circumstances, or move your account to another fund or financial institution to keep your retirement and financial assets in one place.
A transfer is not considered to be a withdrawal for tax purposes, so there will be no reporting to the IRS and no taxes withheld. Generally, a transfer applies to IRAs of the same type: moving funds from an existing Roth IRA to another Roth IRA, or an existing Traditional IRA to another Traditional IRA. You can also transfer funds from a SEP IRA to a Traditional IRA or a SIMPLE IRA to a Traditional IRA, as long as you have had the SIMPLE IRA for at least two years.
(Note: It is important to understand that a transfer from a Traditional IRA to a Roth IRA is known as an IRA conversion, and different rules apply.)
IRA transfer vs rollover
When you transfer an IRA account, you move a single type of account from one institution to another – the account type doesn’t change. A rollover is used when you want to move funds from a prior employer’s retirement fund from one type of account to another (e.g. 401k to traditional IRA). There are some pros and cons with 401k to IRA rollovers. This IRS rollover chart describes which types of accounts you can roll “from” and “to”. There are two types of rollovers: direct rollover and indirect rollover.
Direct rollover – If you have funds in an account and want to move them to another institution, a direct rollover may be used. When the funds are directly rolled over, there are no taxes withheld.
Indirect rollover – As an account holder, you can request an indirect rollover and the funds are distributed to you for your possession. When this is done, it is considered a distribution and is taxable. However, if all the funds are moved into a new tax-advantage account within 60 days of the distribution, they return to tax-avantage status again.
How does an IRA transfer work?
The process is simple. Tell the new company that you want to transfer funds from an existing IRA, and give them the account details. The two companies will handle the transfer for you.
Some people are nervous about setting up a retirement account because they are afraid that they will make the wrong investment choices. The transfer privilege may help give you confidence, because if your investment needs change, you can move your IRA with ease.
