If you want to move your IRA account, be aware of any possible ramifications of not following regulations precisely. Failure could trigger a tax event and can have serious repercussions for both yourself and the IRS.
One method for avoiding mistakes when it comes to direct trustee-to-trustee transfers is using direct trustee-to-trustee transfer processes managed by institutions involved. Such procedures tend to be less prone to mistakes.
Direct trustee-to-trustee transfer
Direct trustee-to-trustee transfers are the ideal way to move an IRA without incurring taxes, as this process is entirely managed by both institutions involved and requires minimal work from you. To initiate one at your new institution, open an IRA there with contact information provided; your new provider then contacts your old provider requesting funds be moved; they then contact their old provider who send a check directly over – all this usually happens within 60 days!
Transferring funds between IRAs is known as a rollover or trustee-to-trustee transfer. Both of these processes have specific rules you must abide by to avoid tax consequences.
If you’re switching providers because you found one with lower fees or better investments, an IRA rollover might be the ideal solution for you. Just keep in mind that any money withdrawn must be redeposited within 60 days or face additional income tax and early distribution penalties.
Rollover funds from an old retirement plan into an IRA at a new company and fail to redeposit them, you will incur a 10% tax withholding and must make up this money out of pocket. Likewise, this rule also applies if your distribution exceeds what was contributed initially to the account.
How can I avoid the withholding penalty? One option is a trustee-to-trustee rollover, which will allow you to bypass the 60-day timing requirement and avoid 20% withholding. But you must keep detailed records, making sure your new IRA is registered with its FBO rather than its beneficiary.
Trustee-to-trustee transfers are easier to manage than direct rollovers because you are not physically taking possession of the assets. This method is often preferred when moving IRAs between trustees, particularly from employer sponsored retirement plans such as 401ks.
Moving an IRA typically means changing investment firms, so the key factor here is redepositing funds within 60 days and no more than once every calendar year. If you need assistance or are unsure about the rules surrounding an IRA or 401k rollover, consulting with a financial advisor could provide invaluable guidance and assistance. Nabers Group provides full assistance in rolling over your IRA or Solo 401k, from trustee-to-trustee transfers all the way through to making sure all applicable rules are observed during this transition process. Regardless of which method is chosen to move your account, it is crucial that excellent records be kept of when documents were submitted, how funds were received and who was spoken with at both custodial firms involved in this transfer process.
