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One of the benefits of an Individual Retirement Account, or IRA, is that you can control how the money is managed. This is includes being able to switch the financial institutions where the money is held without penalty. The process of moving IRA funds from one place to another is called a rollover. Read on to learn how to rollover an IRA easily and without penalty.
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Introduction
- If you are unhappy with the fees or investment choices offered by the financial institution who holds your IRA, you are free to move the funds. This is generally a simple process, and will not have any tax consequences as long as the money is withdrawn and redeposited within 60 days.
Step 1: Decide Where the Money is Going
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- IRAs can be invested in a variety of financial instruments including bank CDs, mutual funds, hedge funds, and even commercial real estate. Select a custodian with a low cost structure and the investment choices that are right for you.
Step 2: Do the Paperwork
- The receiving custodian will usually be able to give you a form that you can sign and send to the institution who currently has your IRA, with instructions governing the rollover.
Step 3: Transfer Funds
- If the transfer happens directly from institution to institution, you'll automatically satisfy the IRS requirement that the rollover needs to be completed within 60 days. If, however, you have requested a check from the existing custodian, you'll need to make sure that it is deposited in a new IRA within 60 days, otherwise the distribution will be taxable as income, and may also be subject to penalties.
- The entire amount that was in the original IRA needs to be redeposited in the new IRA.
- If the check you received had taxes withheld, you still need to redeposit the gross amount.
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