
If moving your retirement funds around makes you a little nervous, there’s good reason. With many retirement plans, including IRAs and 401(k)s, if you’re not careful, you could end up paying unexpected penalties and additional tax. Understand a few basic rules and consult with a tax professional so you can move your money without making costly mistakes.
In IRA lingo, moving money from one retirement account to another is known as a rollover, a transfer, or a conversion. And, as you may have guessed, those transactions have rules. Here are a few things to understand about moving your retirement funds.
Know the difference between transfers, rollover, and conversions.
The difference between an IRA transfer and a rollover is that a transfer occurs between retirement accounts of the same type, while a rollover occurs between two different types of retirement accounts.
For example, if you move funds from an IRA at one bank to an IRA at another, that’s a transfer. If you move money from your 401(k) plan to an IRA, that’s a rollover. And a Roth conversion occurs when you change a traditional IRA to a Roth IRA. The distinction is important because the IRS treats these transactions differently for tax purposes.
Roll funds from one retirement plan directly into another.
The last thing you want to do is accidentally pay more taxes than you have to. So take note: money from a retirement plan that is paid directly to you may be subject to mandatory tax withholdings even if you intend to roll it over to another retirement plan later.
Save yourself that step (and that money) by making sure the funds you roll over go directly to another retirement plan or IRA in one of two ways:
- A direct rollover. If you’re getting a distribution (payment) from a retirement plan, you can ask your plan administrator to make the payment directly to another retirement plan or to an IRA. The administrator may issue your distribution in the form of a check made payable to your new account.
- Trustee-to-trustee transfer. If you’re getting a distribution from an IRA, you can ask the financial institution holding your IRA to make the payment directly from your IRA to another IRA or to a retirement plan.
Timing matters.
With both rollovers and transfers, the money must be in the new account no later than 60 days from when it was withdrawn from the original retirement account. You technically can “borrow” these funds during that time period, but that’s a little risky because if you don’t deposit the full amount into the new account, you’ll end up paying an early withdrawal penalty and income tax on that amount.
It’s also important to note that you can only roll over or transfer IRA funds once per year.
Switching jobs gives you rollover options.
If you have a retirement plan at your current job and you change jobs, you usually have choices regarding those funds. You may be able to move the money into a 401(k) with your new employer, move it into an IRA, or even split the amount between both the IRA and the 401(k), depending on the terms of your new employer’s plan. Check out the IRS’s rollover chart for a summary of which types of accounts you can roll over funds to and from.
You can roll over after-tax funds to a Roth IRA.
You can usually roll over post-tax funds from a qualified employer plan into a Roth IRA. This is good news because Roth IRAs offer significant tax advantages and other features that make them valuable savings tools.
You fund a Roth IRA with post-tax dollars. Since you pay taxes on the front end, you don’t have to worry about paying taxes on your earnings or qualifying withdrawals.
Learn more about Roth IRAs here.
If you’re ready to roll over your retirement plan, be sure to consult with a tax professional familiar with your situation. Also visit the IRS website for the most current information.
Comment on this article
Comments
Jim S. on December 11, 2018 at 9:05pm
How do I transfer a Roth IRA from MN to Ally? Do I have to have an account already ope with Ally? can I make stock trades from within the Roth IRA?
Eileen S. on April 9, 2019 at 2:55pm
It is a good article. But your bank does not follow this policy. I tried to make an internal transfer for the conversion of a traditional ira in this bank to a roth. It is listed as a rollover conversion. The paper work does not allow for a transfer. The IRS allows one rollover a year and unlimited conversions.
g.b. on April 9, 2019 at 9:04pm
Ally can not do an Ira transfer within their own bank. Everything is a rollover for them.
Ally on April 15, 2019 at 3:32pm
This depends on your specific situation. We’re here to chat if you have questions pertaining our IRAs. Give us a call at 1-877-247-2559 or chat with us online at ally.com.
Ally on April 15, 2019 at 3:40pm
Hi Eileen, sorry to hear your frustration. We're here to answer any questions you may have, call us at 1-877-247-2559 or chat with us online at ally.com
Once p. on March 23, 2020 at 10:24am
"It’s also important to note that you can only roll over or transfer IRA funds once per year." This then goes to an IRS page that says "Direct transfers of IRA money are not limited." Are you sure *TRANSFERS* are limited to once per year as well? Or just rollovers? For example, if I have a Roth IRA at one trustee, and I want to move those funds to a Roth IRA at another trustee, aren't these unlimited?
Dan B. on November 23, 2020 at 5:13pm
How do I transfer my IRA funds from a Bof A account to an Ally account
Ally on November 23, 2020 at 5:17pm
Hi Dan, here is some info on rollover IRAs: https://www.ally.com/iras/rollover-ira/. You can also give us a call at 1-855-880-2559 and one of our team members will be more than happy to help answer your questions.
Rick M. on December 23, 2020 at 4:10pm
How can I move my ira funds into a certificate of deposit or other secured entity and still keep it as an ira without tax penalties?
Mark A. on January 21, 2021 at 6:52pm
I have a ~$60,000 Roth IRA with an other bank. I want to invest in Bitcoin. If I transfer the account to Ally can I self manage and purchase Crypto assets?
Mark C. on February 19, 2021 at 4:31pm
Apparently ALLY cannot do a ROTH conversion without it counting as your once per year rollover. You are required to execute a Rollover Election form when converting a traditional IRA to ROTH in addition to their ROTH conversion form. Other banks and credit unions require only the conversion form. Also, the article above is incorrect in stating that you are limited to one transfer per year. Trustee to Trustee direct transfers are unlimited.
Bradley G. on February 19, 2021 at 4:57pm
I am no interested in doing a roll over. Is there instructions on how to transfer an IRA?
John b. on October 6, 2021 at 1:48pm
If I already this year rolled over a pension to a 401k, can I roll over an ira to another tax free account, or do I have to wait another year?
Ally on October 6, 2021 at 1:49pm
Hi John, please give us a call at 1-855-880-2559, so we can assist further.
Fahad k. on March 3, 2022 at 3:23am
why we use rollover word for super? any specific reasons.
Ally on March 3, 2022 at 3:24am
Hi, thanks for reaching out. Our team would be happy to discuss this further with if you’ll give us a call at 1-855-880-2559.
Sal on April 18, 2022 at 6:03am
Can I do a direct transfer (Roth to Roth) and an Indirect Rollover (Traditional 401 K) to Roth IRA in the same year (I paid the 20% tax already when I received the money) without being penalized
Ally on April 18, 2022 at 6:04am
Hi Sal, please give us a call at 1-855-880-2559, so we can discuss this further with you.