Rolling funds over between IRAs is generally straightforward, though you’ll want to ensure you abide by any relevant rules or consult a financial advisor if needed.
There are two options for transitioning your account. An indirect rollover allows the custodian to send you a check, which you then deposit into your new Roth account within 60 days, or you can arrange for trustee-to-trustee transfer.
What Can I Roll Over to a Roth IRA?
An Roth IRA rollover requires careful thought and the guidance of a financial professional, depending on the particulars of your circumstances and tax situation. Failing to complete it correctly may have significant tax ramifications.
For instance, if you are consolidating nondeductible contributions from other IRA accounts into your new Roth IRA account, the IRS pro-rata rule will require you to calculate their proportion relative to total IRA assets – this calculation can be complex and time consuming.
As a general rule, rolling your retirement savings from an old employer-sponsored plan or IRA to a Roth is only suitable when significant life events arise – such as job changes and retirement. Even then, however, the process can be cumbersome given logistics considerations and potential five-year rule restrictions. It might be beneficial to explore this option during midcareer when contributing regularly while not yet approaching retirement age.
What Can I Roll Over to a Traditional IRA?
Direct transfers offer the simplest route for transitioning a retirement account into an IRA, moving funds directly from one financial institution to the other without needing your intervention or knowledge of how the process works. Please ensure all paperwork required for conversion has been filed properly prior to initiating this transfer process.
If you want to move funds between IRA accounts, there may be tax implications you should keep in mind. Transferring money between accounts constitutes a distribution and must be taxed as ordinary income – which could push you into higher tax brackets for 2019. Therefore it’s wise to carefully consider all your options and consult with a financial professional.
Some individuals choose to move their funds indirectly from a traditional IRA into their Roth IRA, which involves calculating what proportion of your total IRA assets have never been taxed – this includes both deductible and nondeductible contributions – without incurring penalties from taxes. As this can be a complex calculation, financial experts should always be sought for assistance when undertaking this undertaking.
What Can I Roll Over to a SEP IRA?
Simplified Employee Pension Individual Retirement Accounts (SEP IRAs) provide tax-favored solutions for self-employed, small business owners and freelance workers. Similar to an IRA, SEP IRAs accept rollovers from other retirement accounts provided that these transfers occur through trustee-to-trustee direct transfers.
SEP IRA contributions, unlike IRA contributions, are made by employers rather than employees. Employers can contribute up to 25 percent of an employee’s compensation or $66,000 by 2023 (whichever comes first).
Workers can contribute traditional IRA contributions to their SEP IRAs, with annual maximums in place for this type of account. This allows workers to contribute the maximum allowed into their day job 401(k), yet still have enough room for future investments in their SEP IRA. There’s one important caveat, though: The IRS only permits one rollover from SEP IRA to another retirement account each year – otherwise each transfer counts as a distribution and may incur penalties from them.
What Can I Roll Over to a SIMPLE IRA?
Individuals can transfer contributions made to a SIMPLE IRA into either another Roth IRA, Traditional IRA, 401(k), 403(b), or government 457(b) plan – though there may be limits imposed by the IRS on how much can be transferred within two years of participation in a SIMPLE IRA plan.
People looking to conduct a direct rollover must contact both of their accounts’ administrators, which will likely require paperwork exchanged between accounts. Usually, the administrator of their new account will provide clear instructions regarding writing out and mailing a check to their old one with all pertinent details on it.
An indirect rollover is a more complex process requiring individuals to receive distributions from their source plan, then deposit them within 60 days into another account – otherwise the distribution will become subject to tax at normal income tax rates and may incur an early withdrawal penalty of 10% if under 59 1/2.
