Owning an individual retirement account (IRA) is the first step toward a more comfortable retirement. However, these accounts require regular monitoring and keeping abreast of fees and other administrative factors to ensure you maximize this tax-advantaged opportunity.
As the range of financial service providers offering IRA accounts is extremely wide, the investment options and services offered also vary greatly. You may find a bank or brokerage that offers investment options that are better aligned with your goals or have a more amenable fee structure. In this case, your best option may be to transfer the funds in your IRA account to a new institution.
The fastest way to transfer your IRA account balance from one institution to another is the so-called “trustee-to-trustee” transfer. If you request a trustee-to-trustee transfer, also called a direct transfer, your service provider will move your funds directly to the other financial institution and no tax payment obligations will arise.
Another way is to have your current account managing institution write out a check to the new institution of your choice, which you can ferry to the new trustee yourself. The check must be deposited into another IRA account within sixty days of the check’s issue date in order to avoid paying taxes and being penalized. Make sure you pay the amount within the given time window, otherwise the IRS considers it a distribution.
If you want to convert a traditional IRA into a Roth IRA, you will have to pay taxes on the amount seeing how the transfer will be reported as income. In certain cases, there may be legal means to avoid paying income tax, but the process is complicated and we recommend that you consult with a qualified financial advisor.
How to transfer an IRA to a new institution?
What is the difference between an IRA transfer and an IRA rollover?
As described above, an IRA transfer occurs when you move your IRA balance from one financial institution directly to another. If you won't get distributions, then the transfer will be tax-free.
A rollover is when you move funds from a company-sponsored retirement plan, such as a 401(k) or a 403(b) to an IRA. Consult this article for details and rules on rollovers. Bear in mind that rollovers and transfers do not count toward your annual IRA contribution limits.