Where Can I Move My IRA Without Paying Taxes?
If you have an existing 401(k) plan at work and wish to convert it to an IRA without incurring tax consequences, doing so within 60 days of receiving the check should do the trick without creating any taxable events.
Make sure the new sponsor knows you are rolling over, to avoid withholding funds for taxes and penalties. Also ask whether the check should be payable directly to yourself or to the IRA institution.
Direct trustee-to-trustee transfer
Direct trustee-to-trustee transfers offer an efficient method for moving retirement assets between institutions quickly. This type of rollover does not require custodians to report it to the IRS and thus avoids the 60-day time limit and 20% mandatory withholding necessary with indirect transfers.
To complete a direct rollover, it is necessary to arrange for your old account provider to write you a check payable to your IRA’s new investment company and deposit its full amount, plus any taxes withheld, into it directly. When depositing, be sure to follow all instructions given by your new investment provider or you risk incurring tax liability rather than enjoying tax-free distributions; hence the importance of keeping good records of transactions.
Direct rollover is the fastest and simplest way to transfer an IRA without paying taxes. Simply request that your former employer send the full distribution directly to your new provider who should provide clear instructions on how to process it.
Make sure that the check is addressed to the new IRA provider and in your name; otherwise it will be considered an indirect rollover and subject to taxation unless it can be returned via withholding tax refund.
Making an educated choice when it comes to rolling over a 401(k) can be complex and overwhelming, which is why Bankrate provides an explainer on this process and an extensive list of the best places to open an IRA (including brokerage options for DIY investors as well as robo-advisors for those wanting someone else to manage and rebalance their portfolio over time).
This method may be the fastest, but may not always be the most tax-efficient option. If your IRA contains substantial non-traditional investments that need converting, conversion may cause onerous taxes and fees that a tax advisor can help with crunching the numbers on. When using this strategy it’s wiser to convert only funds that will remain in your account until retirement; conversion could push your income bracket higher if converted during a low income year or nearing retirement.
If you opt to roll over your IRA, the old sponsor will send a check that must be deposited within 60 days in a new IRA in order to avoid paying taxes and penalties. Before proceeding with this move, ensure all documents required for withholding have been signed off on by both sponsors as well as how long the transfer should take.
Consolidation in finance and accounting refers to the practice of merging multiple financial accounts into one, in order to reduce manual effort and comply with regulations more easily, while simultaneously giving an accurate picture of a company’s finances.
When moving your IRA, be aware of its tax repercussions. In general, ordinary income taxes must be paid upon withdrawal as well as possible penalties if taking withdrawal before age 59 1/2; however, there may be ways around these taxes.
Direct rollover is one of the fastest ways to transfer an IRA without incurring taxes, involving your employer sending directly deposit the money into your IRA provider. While this option doesn’t fit all retirement plans, it is usually effective. There may also be legal strategies you could try; SmartAsset’s free advisor matching tool can help find one in your area.
Categorised in: Blog