Over the course of the many years that you spend saving for retirement, you could decide that you need to make a change in your IRA trustee. For example, if your money is in a bank savings account, you might want to maximize your investment returns by moving that money into stocks or mutual funds. Or you may not be happy with the service from your trustee. Whatever the reason, moving your IRA funds to a new trustee is an easy process, and it should have no tax implications when done correctly.
Given the fact that you do not actually access funds which are included in a trustee-to-trustee IRA transfer, you do not incur tax debts as part of the process. You will need to document this transfer on your tax return however, in order to ensure full compliance with current IRS guidelines.
The Basics of Tax-Free Transactions
A trustee-to-trustee transfer of your IRA is a tax-free transaction, because you never have access to the money you are transferring. These transfers are also not subject to any tax withholding, because of their tax-free nature. The transfer will be reported to you on Form 1099-R, with the total amount of the transfer shown as the distribution amount in box 1. Box 2a, the taxable amount of the distribution, should be zero.
Trustee Handles the Details
The IRA trustee at the receiving institution should be able to handle the details of the transfer for you. It will request the funds from the current trustee, who will send a check to the new trustee. If your IRA contains individual stocks that you don't want to sell, the current trustee will send the stock certificates to the new trustee. The new trustee will credit the assets to your IRA account.
401(k) to IRA Basics
If you leave a job through which you had a 401(k), you can transfer these assets to an IRA account from your 401(k). The process is the same: You have the trustee of your IRA request the funds, and fill out the forms. If you attempt to transfer 401(k) money on your own, the trustee for your 401(k) will withhold 20 percent of the balance of the account to pay taxes that might be due on your distribution.
Completing the Process Yourself
You can transfer money from one 401(k) account or IRA account to another IRA account on your own, by requesting a distribution from the existing account and then redepositing the money into the new IRA within 60 days. But if you don't deposit the entire distribution into the new account by then, the amount you do not redeposit might be subject to taxes and penalties.
Reporting Your Transfer
You must report any transfer of retirement assets on your federal income tax forms. On Form 1040, report the total distribution from box 1 on your Form 1099-R on line 4a, with the taxable amount from box 2a -- which should be zero -- on line 4b.