How to Transfer an Existing IRA

Be smart when you transfer your IRA and save yourself headaches later.

Be smart when you transfer your IRA and save yourself headaches later.

You are subject to heavy penalties, with a few exceptions, if you remove money from an IRA until you are 59 1/2, but that doesn’t mean you have to keep your IRA account with the same financial institution. You might want to transfer an existing IRA to another provider to get a better return on your investments or because you want to reduce the fees your current provider charges. You won’t be liable for any taxes related to the transfer unless it is also a conversion from a traditional to a Roth IRA. Watch out for Internal Revenue Service rules, though. Transferring an existing IRA incorrectly can result in some heavy-duty tax penalties.

Ask the trustee of your existing IRA if you will be charged a transfer fee. If so, see if your new account provider will reimburse you. IRA account providers sometimes pay transfer fees to attract new customers.

Ask the trustee of your existing IRA to perform a trustee-to-trustee transfer. When you transfer an existing IRA in this manner, you can move stocks and other securities, not just cash. That way, you don’t have to liquidate all of your investments just to transfer the funds.

Perform an IRA rollover if you can’t arrange a trustee-to-trustee transfer. In a rollover, you have the trustee of the existing IRA issue you a check for the money in the account. You have 60 days from the date you withdraw the funds to deposit the check in the new IRA. If you miss the deadline and you are not yet 59 1/2 years old, the IRS defines the withdrawal as an early distribution, and you will be subject to income taxes plus a 10 percent penalty tax on the entire amount.

Use money from a source other than your IRA to pay taxes if you can if you convert a traditional IRA to a Roth IRA. A conversion is basically a transfer of an existing IRA. However, because contributions to a Roth are taxed and those to a traditional IRA are not, you will have to pay income taxes on the funds you convert. In a conversion, all of the money should go into the Roth IRA, just as with any other transfer. If you hold out cash from your traditional IRA to pay the taxes, you will have to pay income taxes and the 10 percent penalty tax on the money you use.

Tips

  • Open a new IRA account before the transfer if you don’t already have one. This ensures everything is ready before you actually start moving money from your existing IRA. You can create an IRA with banks, brokerage firms, investment houses specializing in mutual funds and wealth management firms.
  • Ask the new account provider about fees, account terms and investment performance. If you want to manage your own investments in a self-directed IRA, be sure the provider allows the types of investments you want to make.

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