Rollovers allow you to express your displeasure at the performance of your IRA by moving it to another financial institution without jeopardizing your tax benefits. You can roll over most IRA types whenever you want, even if you're not able to take qualified distributions yet. However, you might incur some penalties if you're taking the money out of the first IRA before the investments mature.
CDs in IRAs
Certificates of deposit can be included in your IRA and commonly carry a hefty early withdrawal penalty. If you want to roll over the money from the IRA before the CD matures, you'll likely be treated as cashing out the CD early and have to pay early withdrawal penalties. For example, if you have a CD that charges a penalty equal to six months of interest if you withdraw early and you roll the money from that IRA to another, you'll owe the penalty.
Rollover Under 59 1/2
You're allowed to roll money from one IRA to another even if you're not allowed to take qualified distributions yet. For example, if you're 55, you can roll money from one traditional IRA to another without any penalties. However, you only have 60 days from the time you take the distribution until the money must be in the second retirement account. If you don't get it back in time, it counts as a distribution, and, like any other distribution before you turn 59 1/2, the IRS adds an extra 10-percent penalty on top the regular income taxes.
SIMPLE IRA Restrictions
The only IRA that puts limits on when you can roll the money over to another account is a savings incentive match plan for employees IRA. For two years after you open the SIMPLE IRA, you're only allowed to roll the money into another SIMPLE IRA. If you try to roll the money into another IRA, it counts as a distribution and your annual contribution. Worse, the early withdrawal penalty within the first two years for a SIMPLE IRA is 25 percent instead of 10 percent. But, once the two years are up, you're allowed to roll the money into any other IRA.
You're only allowed one rollover per IRA per year. Years are measured by 12 months from the date you took the rollover distribution, not calendar years. So, pretend you took money out of your first IRA on Jan. 14, 2014 and put it in your second IRA on February 20, 2014. You would have to wait until Jan. 14, 2015 before taking a rollover distribution from either of those accounts. But, if you had another IRA, you could do a rollover distribution from that account.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."