Can You Do a Partial Transfer of an IRA?
Can You Transfer Part of an IRA? The IRS allows for partial transfers of retirement accounts without adverse tax implications. An indirect IRA rollover, also known as 60-Day Rollovers, allows you to avoid income tax and early withdrawal penalties while saving time from making multiple transfers yourself.
Money must be deposited within 60 days or else taxes and a 10% penalty will apply.
Direct rollovers
Direct rollover is a way of moving money between retirement accounts without incurring taxes or penalties, making it ideal for when people change jobs and need to transfer assets between plans into individual retirement accounts (IRAs). According to IRS requirements, distributions from the original plan must be placed in an IRA within 60 days in order to avoid incurring taxes and fees, known as the 60-day rule.
With direct rollover, your original plan administrator sends a check directly to the new IRA custodian for the amount of an eligible distribution and any applicable withholding taxes, which the custodian deposits into your new IRA. You may add any additional funds within 60 days to cover any taxes withheld from this rollover distribution.
Direct Rollovers provide numerous advantages. First and foremost, they’re quick and straightforward. Furthermore, this type of IRA rollover enables you to transfer pretax contributions and earnings into Roth IRAs without incurring taxes. If you need guidance before beginning this process or have questions regarding its workings, consulting a financial planner or tax specialist before initiating it may also prove invaluable.
An indirect rollover is more complex than its direct counterpart and must abide by specific IRS rules to avoid paying taxes or penalties. These rollovers typically take place when moving money between multiple IRA accounts; the IRS only permits one indirect rollover per year per IRA and cannot transfer your IRA funds twice to the same company or person within any 12-month period.
Indirect rollovers tend to be quicker than direct ones, but can become more stressful should something go wrong during the transition process. You are depending on your old plan and custodian to properly move funds between plans; any mishap could mean money is either lost in transit or ends up sitting idle in a bank vault. Furthermore, there’s usually only so many transfers or conversions you can complete each year; to make sure everything runs smoothly it is important that consultation with a financial professional prior to initiating this process.
Partial transfers of an IRA may help lower the overall costs associated with rolling it over, including taxes and fees. You may incur some fees but these should be lower than cashing out the account and rolling it to a new employer’s retirement account directly. Partial transfers may also help increase after-tax dollars in your Traditional IRA which may help qualify it for Roth conversion in the future; more after-tax dollars mean it will be easier for conversion. Either a partial transfer or direct rollover may be best depending on your circumstances; speak to an advisor before making decisions based solely on this data alone.
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