Transfers & Rollovers

IRA Transfers & Rollovers

If you have an existing plan, you can perform IRA transfers and rollovers (direct or indirect) to move cash or assets to your new self-directed account. The option you use depends on the type of account you have that you are moving into the new plan.

Understanding how IRA transfers and rollovers work and their differences is crucial. Failing to adhere to the guidelines of either transaction can result in taxation and penalties of your hard-earned retirement savings.

IRA Transfers

IRA transfers involve the same type of retirement plan moving from one firm to another. For example: moving a traditional IRA from ABC Bank to a traditional IRA at Advanta IRA. Transfers are not reported to the IRS, and they are not taxable because the assets were never made payable to you or distributed to you.

There is no limit to the number of transfers you can do between IRA custodians. Transfers are available for all types of IRA accounts (Roth, SEP and SIMPLE), as long as the transfer is completed between eligible accounts. IRC Publication 590-A goes into greater detail on what you should know.

Direct Rollovers

A direct rollover is when you move assets out of an employer-sponsored plan (such as a 401(k), 403(b), 457, or pension plan) directly into a new IRA. If the employer-sponsored plan is with a past employer, you can direct those funds to be sent to the new administrator, as well. If your employer-sponsored plan is with a current employer, there may be restrictions on moving those funds to an IRA unless you are over the age of 59 ½ or have other special provisions within your 401(k) plan.


Indirect Rollovers

To move funds in an indirect rollover, you personally take possession of your assets and upon receipt, you place these assets into your new account with a qualified firm. The funds must be rolled over into the new account within 60 days of the original distribution to ensure the assets remain inside the tax protection of your IRA. Failure to do so may result in your being taxed on those funds and having to pay an early-distribution penalty.

The IRS only permits indirect rollovers once per 12-month period. These transactions trigger various tax implications and are typically performed in rare circumstances. Consult with the proper professionals before you make this move.