Can You Roll an IRA Into Another IRA Without Penalty?
Direct IRA rollovers involve having the distribution from your old retirement account sent directly to the custodian of your new IRA account, while indirect rollovers allow for additional flexibility.
Typically, one IRA rollover per year is allowed, though there may be exceptions. You should deposit the funds (with 20% withheld for taxes) within 60 days.
If you own an old IRA, transferring the money may offer higher returns or better investment options. But in order to avoid taxes and penalties, the best method is a direct rollover – also known as trustee-to-trustee transfer – which provides efficient transfer. By following these instructions properly, rollover mistakes are minimized.
How to Do a Direct IRA Rollover
In order to conduct a direct IRA rollover, you will need to contact the administrator of your previous employer’s retirement plan and ask them to transfer funds directly into your new IRA. Typically this company provides periodic account statements. You should find their name and number listed on these statements. Once contacted by them they will send out instructions as to how best to proceed with this.
In most instances, receiving a letter with instructions to direct transfer funds requires you to provide basic identifying information such as your social security number and account numbers. Furthermore, you will likely be asked to sign a document authorizing this transfer; as this is a legal obligation it is essential that all your details have been accurately represented on these documents.
Be mindful that when undertaking a direct IRA rollover, all distributions must be fully deposited into your new IRA within 60 days from when they were distributed from your original plan. Otherwise, the IRS could treat them as taxable withdrawals subject to income taxes and an early withdrawal penalty of 10%.
One rollover per year is allowed between traditional, Roth, SEP, SIMPLE IRAs and employer-sponsored plans such as 401(k). However, this limit does not apply when moving funds between IRAs.
Direct IRA transfers may be the simplest solution, but they may take weeks or months to complete. If this concerns you, be sure to communicate with both of your IRA sponsors to establish an exact timeline as well as discuss any issues which might arise.
Your new IRA investments can either be managed yourself or outsourced to someone. When considering which option best meets your situation, take note of any associated costs to make an informed decision.
Once upon a time, the IRS permitted people to make non-taxable IRA rollovers between accounts owned by one person. But following a 2014 court case involving an entrepreneur who transferred her IRA assets between companies only to then use those same funds from her new IRA to buy shares in her old one with her newly accumulated capital gains taxes due. These new rules aim to prevent this kind of behavior in future transactions.
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