Where Can I Move My IRA Without Paying Taxes?
An Individual Retirement Account, or IRA, is a popular investment choice but should be treated carefully due to a few crucial rules that need to be observed. One such rule involves moving money between financial institutions – this can potentially incur taxes and penalties if done incorrectly.
Direct rollover transfers, handled by institutions, are the simplest form of transfer that don’t trigger tax events.
Direct rollover
Direct rollovers are an efficient means of moving assets from one retirement account to the next without paying taxes, such as from an old employer’s 401(k), 403(b), or government 457(b). They may also take place from traditional IRAs into Roth IRAs; there’s no annual limit set by the IRS regarding direct rollovers.
To complete a direct rollover, you have 60 days from receipt of funds in your new IRA or face penalties. The 60-day clock starts ticking when your distribution check arrives; not when it’s deposited into it. In order to maintain tax-deferred status and avoid taxable withdrawal, all of it must be deposited within this window or face penalties.
Indirect rollovers may require more complex arrangements, but can still be completed tax-free. They involve taking a short-term distribution from your old plan and using that money to move into an IRA account – but note that you can only conduct one indirect rollover per year and must deposit the entire amount by the end of 60 days or face penalties.
The best place for you to move your IRA depends on your own individual circumstances and preferences. For instance, if you want to invest with different strategies, brokerage or robo-advisor options could be preferable. Each institution has their own procedure for handling rollovers so it’s wise to speak directly with each institution about them as soon as possible if you wish to switch institutions; consulting a financial advisor or tax professional might also prove invaluable for making informed decisions about where best to transfer.
Some investors choose an in-kind IRA rollover when they wish to keep an investment that has performed well, like stocks. This allows you to keep it while avoiding capital gains taxation on any capital gains accrued; especially helpful for early retirees not yet ready to liquidate all investments at once.
People looking to move money from a retirement plan into another taxable account, like an investment or mutual fund account at their bank or broker may also use this method. Rollover IRAs are an easy and common way to transfer funds, though there may also be other means available. Be sure to follow any instructions provided by your institution for moving funds between accounts. They may require that you use a particular format or include certain information on any checks that you send to them; failing which, they could reject and delay or stop your rollover process altogether. If that occurs, taxes will need to be paid on any money moved and an early withdrawal penalty of 10% could apply if you’re under age 59.5. Therefore, it’s wise to consult a financial adviser or tax professional prior to taking any actions that can incur taxes or early withdrawal penalties.
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