An IRA transfer is when you take an IRA from one financial institution and roll it over to another.
Some people choose to transfer an IRA if they are dissatisfied with their current IRA. They may also opt for a transfer if they feel that their IRA provider is underperforming in terms of managing their money.
Other reasons for transferring an IRA include when your bank or brokerage does not offer the asset classes that you want or lacks a retirement account that meets your needs.
IRA transfers are an excellent way to add new investment vehicles to your portfolio, and to achieve better diversification.
An IRA transfer involves 'shuffling’ your IRA money from one institution to another. So if you are unhappy with the services of your current IRA provider, you can move your IRA to a different IRA company to get the desired services.
Types of IRA Transfers
There are two main types of IRA transfers: indirect rollover and direct rollover.
Direct Rollover (Trustee-to-Trustee Transfer)
With a direct transfer, your new institution will move the money in your IRA directly from your previous account to your new one, without having to ask you for permission or send it back when the transaction is complete.
To avoid triggering a taxable event, you may need to fill out the Internal Revenue Service form with your new institution. Consult with a professional tax attorney before proceeding with either of these transfers.
Indirect Rollover (60-Day Rollover)
If you want to keep your IRA distributions the same, but the new institution requires a 60-day rollover, you can do this by rolling it over via indirect transfer.
With an indirect rollover, you withdraw your money from your previous IRA provider and move it to another one of your financial savings accounts.
You then rebuild your IRA with the money you have moved into that account.
Essentially, this is a temporary solution to avoid paying taxes and penalties on the distribution until you can find another IRA or financial institution to hold your money.
Since this method does not involve moving the money directly from one account to another, there are no tax consequences.
Paperwork Involved with an IRA Transfer
There are many steps to follow when transferring your IRA into another financial institution – or even if you are just making a withdrawal.
The first thing to do is to stop contributing to your IRA account. This prevents money from being added to your account while it is being transferred or withdrawn.
Before you can proceed with the IRA transfer, you must complete some important paperwork that authorizes the transaction.
You will likely be asked to fill out a beneficiary designation statement, which names the beneficiaries of your IRA in the event that you pass away before taking full distribution of your retirement funds.
You will also need to complete an IRA distribution form. This form is used to withdraw money from your IRA account.
The length of time taken for an IRA transfer to finish varies based on the speed of the financial institutions involved in the process. It typically takes between one and two weeks for your IRA provider to receive the money you transferred into their account.
Tax Consequences of an IRA Transfer
If you make a withdrawal from an investment before you turn 59.5, or if you take out more than you are allowed per year, you will be required to pay taxes and penalties on any amount that you withdraw from your IRA.
If you transfer money to a different IRA company, the taxes and penalties associated with a withdrawal will stay in place – even if they were going to be waived or delayed by waiting for retirement age.
Before starting the process of transferring your IRA, you may find it beneficial to speak with an accountant about these rules and tax consequences.
IRA Transfer Rules
Keep these IRS Rules in mind when choosing whether to transfer your IRA account:
- Rollover of all distributions can be made, but exceptions to this are the required minimum distribution and any distribution of excess contributions and related earnings.
- Within 60 days, the transfer must be made into the new account.
- For all IRA accounts you own, you can only transfer once per year (12-month period).
- Transfers are possible to most types of IRAs and retirement accounts.
- Your retirement plan is not required to accept your transfer.
Things to Consider When Transferring IRA From One Institution to Another
If you have an IRA with a previous financial institution, you may be able to transfer it to your new institution. This can be a great way to save on fees and get started with your retirement savings plan.
Transferring an IRA can help you avoid fees and establish your retirement savings plan. However, there are other factors to consider before transferring your old IRA, including the following:
Review Fees
Putting your money in a savings or checking account is usually less expensive than investing it.
To see this, compare the costs of transferring an IRA at your current institution to the fees you would incur by opening up a new IRA at another institution.
Review Investment Options
If you are considering moving your IRA from one financial institution to another, look into the investment options at the new institution. You do not want to be stuck with the same investment options you had at your previous institution.
Understand the Tax Implications
When transferring an IRA, you will trigger a taxable event. This could mean you will owe taxes on the money transferred. Make sure you are aware of the potential tax implications before transferring your IRA.
Check Out Your New Institution's Reviews
If you are considering transferring an IRA to another financial institution, check out the reviews for your new institution beforehand. This will give you an idea of how reputable it is and if its fees are reasonable.
Benefits and Drawbacks of IRA Transfer
There are both benefits and drawbacks to transferring an IRA from one institution to another.
Transferring your IRA may be a good option if there are no fees at your new financial institution, or if the investment options are better. It is also helpful because it consolidates all of your retirement savings into one place.
The downside to transferring an IRA is that your options might become more limited. Also, you may incur a penalty if you withdraw money from your IRA before retirement age, and there can be tax implications associated with moving your IRA.
Conclusion
An IRA transfer is when you move your Individual Retirement Account from one financial institution to another. It can be a great way to consolidate your retirement savings and avoid fees.
There are several things to consider before transferring an IRA, such as fees, investment options, and tax implications.
Ultimately, whether or not an IRA transfer is right for you depends on your individual circumstances. You should also make sure to research the investment options at your new financial institution.
FAQs
1. What is an IRA Transfer?
An Individual Retirement Account transfer, or IRA transfer, is the movement of funds from one IRA to another. This can be done for a variety of reasons, including cutting costs associated with fees, consolidating accounts, and maximizing investment options.
2. Why would you want to do an IRA Transfer?
When transferring an IRA from one institution to another, an investor often wishes to consolidate accounts and reduce costs. By consolidating IRA accounts at a new financial institution, the individual is required to deal only with one account and likely incur fewer fees.
3. How do you initiate an IRA Transfer?
To complete an IRA transfer from one institution to another, the investor must fill out the paperwork necessary to initiate the transfer. In some cases, specific forms must be completed to ensure that tax implications are covered by the individual.
4. What paperwork is involved in IRA transfers?
When transferring an IRA from one institution to another, you will need to fill out all necessary paperwork. This can include forms that indicate tax implications and any other requirements mandated by the specific institution.
5. What are the tax implications of transferring an IRA?
If you transfer your IRA, you could be subjecting yourself to a taxable event. You will also incur penalties if you withdraw money from your IRA before the age of 59.5.
