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Should You Transfer or Roll Over Your IRA: Learn the Difference


An individual retirement account (IRA) provides a fantastic way to save for your future. But do you understand all the nuances of this type of retirement savings, such as when you perform an IRA rollover and when you need a transfer?

Knowing the difference ensures you make the right decision with the money you have been saving for the future. Here’s a look at what an IRA transfer is, what it means to do an IRA rollover, and how the two differ.

What Is an IRA Transfer?

When you perform an IRA transfer, you switch your retirement assets from one IRA institution to a different one. Essentially, you change the custodian of your account, but you don’t move it into a different type of account.

For instance, you might find a brokerage that offers more varied investment options than your current IRA provider has. Or you might search for lower fees than your current one and discover that a bank has better options.

It isn’t complicated to perform the transfer. It’s a lot like moving money from one savings account to another. You must ask your current custodian to create a trustee-to-trustee transfer, which will switch your IRA to your new custodian.

What Is an IRA Rollover?

A lot of people use the term rollover when they actually mean transfer. Rollovers refer to moving your retirement savings from a different type of account to an IRA. For instance, you might work for 20 years at the same company and contribute money to a 401(k). Then you get a new job.

You don’t want to keep your money in the old job’s 401(k). You want it somewhere with lower fees that gives you more control, so you put it in an IRA. A rollover includes moving funds to an IRA from a 401(k) or a:

  • 457(b)

  • 403(b)

  • SIMPLE IRA

  • SEP IRA

You can complete two different kinds of IRA rollovers, direct or indirect. When you do a direct rollover, your current retirement plan custodian issues a check to your new IRA, meaning you don’t have to do anything. An indirect rollover demands a bit more effort. In this case, you need to get the assets from your current retirement plan, then put them into your IRA within 60 days. If you don’t deposit it within that time, you have to take a 10% early withdrawal penalty.

Do You Get Any Tax Penalties on an IRA Rollover or Transfer?

No, you won’t have to pay a penalty if you transfer or directly roll over an IRA. However, you do have to report the action to the IRS. You shouldn’t have to pay taxes on the indirect rollover, either—but, as we cautioned, you will owe a 10% penalty if you fail to deposit your retirement money in the new IRA within the prescribed timeframe.

Transfers and rollovers are closely related but different. If you are still struggling to understand the difference, reach out to Jay. He can explain the details and help you determine what you need to do.

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