Alternate name: IRA rollover
The most straightforward type of retirement account transfer is from trustee to trustee, which is simply a direct transfer of an account from one financial institution to another. For example, you could move an old 401(k) into a new 401(k) account or a traditional IRA to another traditional IRA, just with a different bank. Other types of transfers include:
Direct rollover: Moving funds from one type of retirement account to another, like a 401(k) to an IRA Indirect rollover: Receiving the funds directly and reinvesting them into another qualified plan Roth conversion: Converting a traditional IRA to a Roth IRA
How Does an IRA Transfer Work?
The IRS sets the rules for eligible accounts, penalties, and more related to IRA transfers. Depending on the source of your IRA, your plan administrator or financial institution will assist with the logistics of the transfer. If you leave your job and get a new one, you’ll have a few options to consider if you have funds in an employer-sponsored retirement plan. For example, you may be able to move the money into a 401(k) with the new employer, move it from a 401(k) into an IRA, or even take a direct payment.
Types of Retirement Account Transfers
Each transaction has its own tax consequences, so it’s important to understand each type. Direct (trustee-to-trustee) transfers from one bank to another are not considered a withdrawal and don’t require you to pay any taxes. A direct rollover from one plan to another, such as a 401(k) to a traditional IRA, will not incur any taxes. You must ask your plan administrator to make the payment directly to the new IRA or retirement plan. Indirect rollovers, in which the funds are distributed straight to you, can be tricky because when you receive a check, the plan will automatically withhold the required 20% for employer-sponsored plans, or 10% for IRAs. You can still roll over the entire distribution tax-free within 60 days, but you’ll need to use other funds to make up for the amount withheld. If you have an account balance of less than $1,000, the plan administrator will typically close your account and send you a check, minus the mandatory withholding. If you want to move funds from a traditional IRA to a Roth IRA, this is known as a Roth conversion, and different rules apply. A Roth conversion is a taxable event, which means you’ll have to pay income taxes on the transfer amount.
Limits on IRA Transfers
Many other rules apply when it comes to IRA transfers. There are limits related to the type of account(s), the timing, and the amount.
Plan Limits
The IRS permits rollovers from a variety of plan types, including a Roth IRA, traditional IRA, 401(k), 403(b), 457(b), and SEP or SIMPLE IRA if you’re self-employed. However, your retirement plan is not required to accept rollover contributions. Check with your plan provider to see what type of contributions are accepted, if any.
Timing Limits
You are only allowed to transfer funds from one IRA to another IRA once within a 12-month period. If you have more than one IRA, they are counted in the aggregate, and the IRS applies this rule to all. There are some exceptions, including Roth conversions, trustee-to-trustee transfers, plan-to-plan transfers, or any transfers that happen between two different types of accounts.
Dollar Limits
You can roll over all or part of any IRA distributions except required minimum distributions or any repayment of excess contributions and related earnings.
