How Do I Transfer an IRA Between Financial Institutions?

An IRA can be set up with almost any type of financial institution including banks, mutual fund companies and discount stockbrokers. If you decide you would like to have your IRA money moved to a different financial company, a transfer is the easiest way to move the IRA account. Understand the difference between a rollover and a transfer before putting into motion your plan to change IRA companies.

Transferring an IRA

You can move IRA money from one financial company to another either by taking possession of the funds and depositing them in the new account or having them directly transferred. Both processes are sometimes called a rollover.

If the IRA proceeds are given to you in the form of a check or wire transfer, you have 60 days to deposit the money into another IRA account. If you don't do so then under Internal Revenue Service IRA rollover rules, you've effectively taken a withdrawal from your account and must pay tax on the money withdrawn, as well as a 10 percent penalty if you're under 59 1/2. You are limited to one rollover o of this sort per year of your IRA accounts, no matter how many IRAs you have.

With an IRA transfer, the money goes directly from the old IRA custodian to the new financial company. There is no limit on the number of times you can transfer IRA money. The financial company that houses your IRA account is referred to as the IRA custodian.

The transfer of an IRA is handled by the company receiving the IRA money. To initiate a transfer you must open an IRA with the new company or you can transfer other IRA money into an existing IRA account that you own. Provide the IRA account information to be transferred to the new custodian and the new custodian will make sure the money is transferred into the new account. You may need to complete an IRA transfer request form for the new custodian to initiate the process.

If you are transferring your IRA from one brokerage to another, check to see if all of the securities you currently own can be transferred to the new custodian. Marketable securities, such as stocks or bonds, can be transferred through the broker-to-broker Automated Customer Account Transfer Service. Other investments, such as private placements or proprietary mutual funds, may not be transferable. These must be sold and converted to cash before the IRA transfer can be completed.

When you provide the information for the transfer to the new custodian ask how long the process should take. Follow-up – either by phone or by checking your IRA value online – to make sure the transfer goes through on a timely basis. Some financial companies, especially the discount stockbrokers, offer to pay any fees the old custodian charges to close and transfer the account. Make sure you receive any reimbursements that were promised.

Early Withdrawal Penalty Exceptions

In some limited circumstances, you can take an early IRA withdrawal without paying the 10 percent penalty tax.

If you are a first time homebuyer, you can take up to $10,000 from your IRAs to pay toward your new home. If you're paying certain higher education expenses for yourself or your family, you can use IRA money without penalty as well.

If you're unemployed and need to pay for health insurance, you can do so with IRA funds. You can also pay for medical expenses beyond 7.5 percent of your adjusted gross income with IRA money.

2018 Tax Law Changes

IRA rules aren't changing much for 2018, but if you do take a withdrawal from your IRA, you may owe less tax than in the past. That's because tax brackets are decreasing overall for all sorts of income.

2017 Tax Law

Conversely, you may owe more on withdrawals taken in 2017 under higher tax rates.