Are You Seeking to Move Your Retirement Savings Institution or Provider? From lower fees and increased investment options, to avoid incurring taxes – there are various methods available to you for making that move.
The easiest and least taxing way is a direct trustee-to-trustee transfer, handled by financial institutions without incurring additional taxes.
1. Direct rollover
Even though it might be tempting, withdrawing and moving the money yourself would technically be considered a taxable event. To avoid paying taxes on this amount, redeposit your distribution within 60 days in a new IRA or retirement account; however, keep in mind you can only move an IRA between accounts once every 12 months.
Direct Rollover: How Can It Work? The easiest way to execute a direct rollover is to contact your retirement plan provider and request that the distribution go directly to where you want it deposited, either with a check payable to that institution, or digital transfer of the funds directly. Each brokerage or robo-advisor may have specific guidelines regarding what accounts can roll over as well as which investments they accept, so make sure you read all instructions and requirements thoroughly before beginning this process.
2. Indirect rollover
As IRAs are tax-deferred investments, they can sometimes be moved around for limited purposes without incurring additional taxes. While indirect moves may be possible under IRS regulations, their fine print and time restrictions make this task complicated and time consuming.
The 60-day Indirect Rollover Rule states that you can move retirement account distributions directly into an IRA without tax consequences, provided they’re redeposited within 60 days. Otherwise, they become taxable withdrawals; and if you’re under age 59 1/2 they could incur 10% early withdrawal penalties as well.
If you plan to participate in an Indirect Rollover, take extra care when reading and understanding any paperwork or online account details provided by firms. Mistakes like incorrectly depositing distributions into taxable accounts instead of IRAs may prove costly and require considerable work for their correction.
3. Same trustee transfer
Moving retirement funds between accounts within the same type can be accomplished via trustee-to-trustee transfers.
This method differs from direct rolling over in that the funds never transfer directly into your new account, therefore avoiding taxes and transfer fees. As it remains an intermediary-to-trustee process, contact your institution in order to begin initiating this transaction.
One downside of same trustee transfers is that your original institution may send a check with withholding taken out and distributed directly to your new IRA provider, so as to ensure the appropriate withholding tax amount is applied accordingly. You can avoid this situation by instructing them to send it directly there instead; this way you ensure all withholding applies appropriately towards your IRA account.
4. Same trustee-to-trustee transfer
Decisions on moving funds between retirement accounts depend on who initiates the transfer of money. With direct rollover, you (as the account owner) initiate the movement by asking your old custodian to issue a check payable directly to the new IRA investment company for your benefit, which then gets deposited directly into your new IRA account. This method avoids violation of 60-day time limit or once-per-year rule by not taking funds out of your hands to invest again, while eliminating any necessary tax withholding requirements that would otherwise apply when switching accounts reinvesting.
An interbank trustee-to-trustee transfer involves financial institutions shifting funds between themselves. This process is commonly employed when moving between IRA accounts at the same financial institution; for example, from traditional to Roth IRA. When using this method, all involved institutions must ensure that new IRA accounts have the same title; otherwise it won’t qualify for tax-free transfer.
