If you're not happy with your IRA's performance, you can do more than just complain. You can roll over your assets from one IRA to another, or if you've left your job, you can roll over assets from a 401(k) to an IRA. If you have your account trustee manage the rollover, there's no tax due on the money transfer. Converting a 401(k) or traditional IRA to a Roth will trigger a tax bill, though.
You may be able to take a distribution from your IRA just by logging in to your account and transferring the money to a non-retirement account. If for any reason that's not an option, calling a rep for your IRA brokerage will do the trick. You pay income tax on distributions if you make them after you turn 59 1/2. Withdrawals when you're younger trigger an added 10 percent penalty. This applies to rollover accounts like any other traditional IRA.
If you take out more than $10 from your IRA this year, your broker sends you a 1099-R before the end of next January. This shows you how much you withdrew and if any of the money was tax-free. That can happen if, for example, you made any after-tax contributions to the original IRA account. You report the total and taxable distributions on your Form 1040 for the year, adding the taxable dollars in with your other taxable income.
Any year you take an early distribution--before age 59 1/2--you report the amounts to the IRS and calculate the tax penalty on Form 5329. The IRS does allow you to withdraw without a penalty for certain reasons, such as high medical bills, disability, college costs or buying a first home. If you meet one of the exceptions, you indicate this on 5329, and show how much of the withdrawal is penalty-free. IRS details the rules for avoiding the penalty in Publication 590.
If you roll over money from a 401(k) to a Roth IRA, you have to report the rollover as income and pay tax accordingly. There's no tax on Roth withdrawals, providing you're at least 59 1/2. If you're younger than that, you pay a 10 percent penalty unless it's been five years since the rollover; if you roll over multiple accounts to the same Roth, you calculate the five-year limit for each of them. You can get an exemption from the penalty for the same reasons as a regular IRA.
- When Are Early Distributions From an IRA Not Taxable?
- How to Transfer IRA Money to Another Institution Without Paying Taxes
- How to Take Medical Hardship IRA Distributions on a Tax Return
- What Is the Penalty if I Cash in All My IRA Before I Am 70 1/2 Years Old?
- Roth Vs. Traditional Vs. Rollover IRA
- How to File Taxes on a 401(k) Early Withdrawal