Rollovers allow you to transfer funds between IRA accounts tax-free. They can either be conducted directly or indirectly.
An indirect rollover occurs when you receive a distribution by check and deposit it back into an IRA within 60 days, thus avoiding incurring both the 10% early withdrawal penalty and 6% extra contributions tax.
Transfers
Transferring and rolling over retirement accounts are both methods for moving money within one firm, usually without liquidating or dispersing of any original account first. Conversely, rollovers require that funds are disbursed before rolling them over into another account.
No IRS restrictions exist on how many direct IRA rollovers you can perform per year. These transfers take place either directly between two like-IRA accounts, or between employee-sponsored retirement plans such as 401(k).
If you convert from a traditional to Roth account, it will trigger income taxes as it’s considered a taxable event and could push you into higher tax brackets in that year. However, if within 60 days after making the conversion you reinvest its proceeds back into another traditional IRA it won’t be taxed as part of an indirect rollover strategy – simply ensure you provide information regarding your chosen investments so the appropriate taxes will be withheld from this investment amount.
Rollovers
Rollovers involve moving money from an employer plan into an IRA account. This strategy is often chosen when people change jobs and need to consolidate their retirement assets into one account, simplify recordkeeping processes and avoid duplicative accounts as well as gain a clearer view of their overall investment strategy.
There are restrictions on how many indirect IRA-to-IRA rolls you can perform each year, however. According to IRS regulations, you are limited to doing one indirect rollover per year due to having contributed the same property that was distributed – this includes cash, stock and mutual fund shares.
This rule does not impact trustee-to-trustee transfers or direct rollovers, which do not require your participation, but does have an impact on mingle IRA contributions with rollovers – so ensure you understand its implications before taking action! For any assistance navigating these rules, contacting a financial professional is always available as an option.
Conversions
One of the easiest and most efficient ways to move assets between IRAs is via direct rollover. This process enables you to transfer traditional or Roth IRA funds directly to another provider with just a few pieces of paperwork submitted – either via wire, ACH transaction or even having checks delivered directly.
The IRS does not impose restrictions on how many transfers between IRAs you can complete in one year; however, you may owe taxes when making conversions. You must determine what amount you owe as taxes before or after making your decisions about which funds should be converted first or later.
Plan your conversion carefully in order to avoid incurring unexpected taxes. Furthermore, future tax rates – something we may not yet be certain of – must also be taken into consideration. Typically speaking, conversion should occur near retirement with lower income levels.
Time limit
Rule of One-Rollover-Per-Year To avoid incurring income tax and an early withdrawal penalty, the Internal Revenue Service mandates that any rollover from one IRA into another must wait 60 days before doing so again in the same year. This applies to traditional, Roth, SIMPLE and SEP IRAs alike. Failure to abide by this requirement could incur income tax as well as possible early withdrawal penalties.
As this 60-day restriction also covers conversions, it’s essential that you pay attention to the timing of any transactions you initiate. Also consult a financial planner or tax professional prior to taking any steps that could compromise this deadline.
Transferring between trustee-to-trustee IRA accounts does not fall under this rule and can be done as frequently as desired; however, trustee-to-trustee transfers do not count as rollovers.
