Can You Roll an IRA Into Another IRA Without Penalty?

Can you roll an IRA into another IRA without penalty

Rollover from an employer-provided plan into a new or existing IRA can be done via direct transfer between accounts; funds won’t pass through your hands at any point.

Within 60 days of receiving a distribution, you have 60 days to roll it over without incurring income tax or incurring the 10% early withdrawal penalty. The Kiplinger Tax Letter offers more details on these transfers.

Direct rollovers

If you are moving funds from your old employer-sponsored retirement plan into an IRA, direct rollover may be the ideal method of transfer. Doing this bypasses having to cash out assets in your former plan and paying any applicable taxes. Plus, this straightforward process only takes a few steps!

First, request a direct rollover with your current employer’s plan administrator. Your employer will provide a distribution form that must be filled out. After submission of this form, the trustee of your old plan will send your money directly to the trustee of your new IRA account; usually this process only takes a few days.

Your money from a direct rollover must be transferred into an IRA within 60 days in order to avoid taxes on its distribution, otherwise it will be considered early withdrawal and subject to a 10% penalty.

To avoid late rollover penalties, it’s advisable to consult a tax professional and ensure you do not miss the 60-day deadline for making indirect rollovers from traditional or Roth IRAs into another in any 12-month period. Any additional indirect rollovers will be treated as excess contributions and subject to an annual 6% penalty until corrected.

Indirect rollovers differ significantly from direct transfers. When making an indirect rollover, the receiving IRA must match up exactly with the original one (i.e. IRA-to-IRA). Furthermore, both must offer identical investment options; so for instance a mutual fund distribution cannot be transferred into a brokerage account that only carries stocks.

Transferring and Direct Rollover differ in that a Direct Rollover requires two similar retirement accounts – meaning an IRA and employer-sponsored plans such as 401(k), Thrift Savings Plan or between two IRAs themselves – in order to transfer. A transfer between accounts cannot take place.

An indirect rollover requires that the recipient of funds provide IRS Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans and IRAs in order to report it. In contrast, transfers do not trigger reporting to the IRS – for instance if you moved your old 401(k) over to Navy Federal’s IRA instead, your brokerage firm would not issue Form 1099-R as your old bank would, potentially saving a few bucks on administrative fees and penalties in future.

Raymond Banks Administrator
Raymond Banks is a published author in the commodity world. He has written extensively about gold and silver investments, and his work has been featured in some of the most respected financial journals in the industry. Raymond\\\'s expertise in the commodities market is highly sought-after, and he regularly delivers presentations on behalf of various investment firms. He is also a regular guest on financial news programmes, where he offers his expert insights into the latest commodity trends.

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