Direct transfers allow you to move your IRA money from one brokerage to another without actually taking possession of the funds. Most brokerage firms use the Automated Customer Account Transfer Service (ACATS) electronic system to ensure accurate and timely transfers between accounts. If there are no problems, the transfer may be as fast as six days through the ACATS system.
Transferring an IRA
Open an account at your new brokerage firm. Set up a custodial arrangement for the incoming IRA funds. Retirement funds must be held by a brokerage firm on your behalf or you might be taxed as if you were taking a direct withdrawal. Your transfer will be delayed if you do not have this custodial agreement arranged before the funds are sent.
Request a transfer form from your new brokerage. Make sure you have the right type of form for transfers between IRA accounts. Some brokers have an all-in-one form for all transfers, while others require different forms for different types of accounts.
Fill in your contact information, Social Security number or tax identification number, existing IRA account number, and the brokerage firm's name, phone number and address. Make a copy of the transfer form for your files. Send the original to your new brokerage firm, along with a recent statement from your existing IRA account.
If you are not able to use the electronic system to move an IRA from one broker to another, your IRA transfer can take up to several weeks. This usually happens because the types of securities offered by your new brokerage do not match the ones you had in your old account. In this case, your existing brokerage must liquidate the securities and send the cash proceeds to your new account.
Rollovers and Taxes
Transferring a retirement account from one brokerage to another without paying tax is called a rollover. You can roll one IRA over to another broker or roll some other types of retirement accounts, including employer-sponsored 401(k), 403(b), SIMPLE IRAs and SEP IRAs into rollover IRAs.
If for some reason you take possession of funds in a retirement account temporarily, you generally must deposit them in the same or a new retirement account within 60 days. If you don't and you're younger than 59 1/2, you'll have to pay the deferred tax on the money plus a 10 percent tax penalty, as it's treated as an early withdrawal.
You will also have tax withheld from the amount you're transferring if you take possession of it, so it's usually best to have the money sent directly from one brokerage to another. You're generally limited to one indirect rollover, where you take possession of the funds in an IRA, per year, so if you want to transfer a rollover IRA to another brokerage you may have to wait until that period elapses or have the money sent directly.
Roth IRAs are different from traditional IRAs. With a traditional IRA or a retirement plan like a 401(k), you deduct the money you put into the account from your taxes the year you deposit it, then pay taxes when you withdraw money. With a Roth account, you pay taxes on the money the year when you earn it as usual, but the money grows tax free and you don't pay tax even on investment earnings when you withdraw them after retirement age.
If you want to convert a traditional IRA to a Roth IRA, you must pay the deferred tax, and you can't freely roll over between Roth and traditional accounts.
Direct transfers are not permitted between different types of IRA accounts. If you have a Roth IRA, you must transfer your funds to another Roth IRA, not a traditional IRA or SIMPLE IRA.
- You can also move your IRA funds through a rollover instead of a direct transfer. If you choose this method, you must request a withdrawal from the original IRA and re-deposit it into your new account. You must make the deposit within 60 days or you will be taxed on the entire amount. You will also be subject to a 10 percent early withdrawal penalty if you are younger than 59 1/2.
- Direct transfers are not permitted between different types of IRA accounts. If you have a Roth IRA, you must transfer your funds to another Roth IRA, not a traditional IRA or SIMPLE IRA.
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