To use an individual retirement account for your savings, you need a trustee or custodian of the account, which must be a bank, a federally insured credit union, a savings and loan association, or any other entity with Internal Revenue Service approval. However, if you're not happy with your current custodian, you're allowed to move your money to a different custodian -- or split it between multiple new custodians -- in most circumstances.
You're allowed to transfer any money from an IRA to multiple other custodians except for withdrawals of required minimum distributions or excess contributions -- and the related earnings. For example, if you contributed too much to your IRA for the year, you have to actually take that money out to correct the excess contribution -- simply rolling it into another IRA doesn't fix the problem. Also, savings incentive match plans for employees, or SIMPLE IRAs, throw in another wrinkle: for the first two years the account is open, you're only allowed to move the money to another SIMPLE IRA. After the two years are up, you're free to pick any IRA you want.
The smoothest way to move money from one account to another is using a direct transfer. With this method, you fill out a form from your custodian that tells it where to move the money and how much you want to move. After you've submitted the form, you're done. Just kick back, relax and watch as the funds move automatically. Unless you're converting from a tax-deferred IRA to a Roth IRA, you won't have to report the transfer on your taxes, and you can do as many transfers each year as you want. If you want to split up your IRA among two new custodians, just fill out two transfer requests, with each transfer being for a portion of the old IRA value.
If you need to use the money for short period of time -- say you need cash but your bonus isn't coming due for two more weeks -- you can use a rollover to move the money instead. After you take the money out of the first IRA, you have 60 days to get all the money into IRAs with your two new custodians. Miss that deadline, and the money's taken out for good -- and you pay the taxes and potential 10 percent early withdrawal penalty if you're under 59 1/2 years old. Plus, even if you don't owe taxes, you still need to show the rollover on your tax return because you're limited to one rollover distribution per IRA during any 12-month window.
If you transfer money between a tax-deferred IRA and another tax-deferred IRA, or a Roth IRA another Roth IRA, you won't owe any taxes because both accounts offer the same type of tax savings. But, if you're converting from a tax-deferred IRA to a Roth IRA, Uncle Sam's going to be expecting some income taxes from you because you're swapping from tax-deferred savings to after-tax savings. Why would you do this? Because when you're taking qualified distributions from your Roth IRA, you won't pay a penny more in taxes, even on the earnings from the contributions.
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