You can move money from one IRA to another for several reasons: to take advantage of better investment options, to shift from an employer-sponsored IRA plan to a conventional account, or simply to change trustees for the IRA. If you move funds between comparable accounts, you don't face a 10 percent early-withdrawal penalty. Moving from a tax-deferred IRA to an after-tax Roth IRA would require you to pay income tax on the money.
Move Any Time
You can move funds at any time from one traditional IRA to another, or from an IRA set up through a Simplified Employee Pension, or SEP. To move from a Savings Incentive Match Plan for Employees of Small Employers IRA -- a SIMPLE IRA -- you must have had the IRA for at least two years. You can move money into a separate rollover IRA, or you can combine it with an IRA to which you are still contributing.
The only restrictions on moving funds among comparable IRAs are that the assets have to be in cash, they cannot be part of a required minimum withdrawal from an IRA after age 70 1/2, and they can't be a distribution of excess contributions and earnings. If IRA assets are in stock, you must sell the stock to get cash in that account before you move it.
To avoid any tax penalty, arrange for a direct rollover, also called a trustee-to-trustee transfer. Have the custodian on one IRA deposit funds directly into another IRA, either in the same institution or in a different one. Don't take any distribution from the old IRA -- that is, a check made out to you. Otherwise you'll face a tax penalty, even if you intend to put the money into another IRA.
Any distribution of an IRA to an account holder is subject to 10 percent withholding. That money must be deposited in another IRA within 60 days or it also will be subject to tax as ordinary income. You can make up any money withheld from other funds and recover the withheld amount on your next income tax return. You can't do this type of move more than once a year. It will have to be reported on a Form 1099-R for the distribution, and on a Form 5498 showing the rollover.
Bob Haring has been a news writer and editor for more than 50 years, mostly with the Associated Press and then as executive editor of the Tulsa, Okla. "World." Since retiring he has written freelance stories and a weekly computer security column. Haring holds a Bachelor of Journalism from the University of Missouri.