What Can I Transfer My Retirement IRA Fund to Without Paying a Penalty?

IRAs can be transferred to some, but not all, types of retirement accounts.

IRAs can be transferred to some, but not all, types of retirement accounts.

If you want to move your individual retirement account but don't want to pay taxes or the early withdrawal penalty, transfer it to another type of qualified account. Most accept individual retirement account transfers. The exceptions are the SIMPLE IRA or a designated Roth 401(k), 403(b) or 457(b) account. Pay close attention to the transfer rules; if you don't follow them, you may be penalized regardless.

Different IRA

If you're simply not happy with the company holding your IRA, you can transfer the funds to a new one at any time. There are no penalties so to speak, but there could be some fees. Some companies will also limit your investment options, or may have proprietary funds only available in their accounts, so do your homework before making the switch. Fees include transaction charges for buying or selling investments, account management expenses, and annual IRA fees.

Qualified Annuity

Transfer the IRA to a qualified annuity if you want a steady stream of income when you retire. The investments will grow on a tax-deferred basis, and you won't be taxed on the earnings until you withdraw the money. Fixed annuities give you a guaranteed payout amount while the payout on variable annuities is determined by the performance of the investments. An immediate annuity lets you start taking distributions right away, but you'll get hit with a penalty if you're under 59 1/2. Deferred annuities have an accumulation phase of a few to several years; you'll pay a penalty if you take a distribution during the accumulation phase.

Employer-Sponsored Account

If you're employed, you might be eligible for an employer-sponsored retirement account such as a 401(k) or 403(b). You can only transfer an IRA into that account if the plan allows it. This could be an option if your 401(k) has low fees or diverse investment choices. A 401(k) restricts withdrawals more than an IRA does, so you'd have limited access to your money with this option.

Roth IRA

You can also convert your traditional IRA into a Roth IRA. There isn't a penalty, but you will pay tax on the full amount of the converted funds that year. A Roth conversion might be an option if you expect to pay more taxes in retirement than the year of the conversion.

Transferring IRA Funds

Regardless of where you transfer your IRA, process it as a trustee-to-trustee transfer rather than a rollover. That way, you'll avoid potential restrictions or tax consequences. A transfer sends tax-free funds directly from one investment company to the other. With a rollover, the company holding the IRA sends a check to you. You'll have to deposit the full amount in another qualified account within 60 days of the withdrawal date, or you'll get hit with taxes. Penalties loom too if you're younger than 59 1/2. You can't have more than one rollover per year from the original IRA or with the rolled over funds.

Photo Credits

  • Jupiterimages/liquidlibrary/Getty Images