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Understanding the ABCs of Retirement Account Moves: IRA Rollovers and Transfers

By   ·  2 minute read

Planning for retirement involves not only saving diligently but also navigating the intricacies of retirement accounts. Among the common maneuvers within this realm are IRA rollovers, transfers, and Roth conversions. Each serves a distinct purpose and understanding the differences between them can empower individuals to make informed decisions about their retirement savings strategy. Let’s delve into the nuances of each:

IRA Rollover:

An IRA rollover involves moving funds from one retirement account (401k, 403B, TSP) to another (IRA) without triggering taxes or penalties. This maneuver is typically employed when transitioning between jobs. There are two types of IRA rollovers: direct and indirect.

Direct Rollover: With a direct rollover, the funds are transferred directly from one retirement account to another. The account holder will typically need to initiate the rollover with the company that is holding their retirement account to move the funds to Preferred Trust. This method ensures that the account holder never takes possession of the funds, thus avoiding any tax implications.

Indirect Rollover: In an indirect rollover, the account holder receives the funds from their existing retirement account and has 60 days to deposit them into a new retirement account. However, to avoid taxes and penalties, the entire amount withdrawn must be deposited into the new account within the specified time frame.

IRA Transfer:

Unlike a rollover, which involves the account holder physically moving funds from one account to another, an IRA transfer is a direct movement of assets between two financial institutions. IRA transfers are typically used when switching financial institutions or consolidating accounts.

To initiate a transfer, the account holder will need to complete and sign a transfer request form provided by the receiving financial institution. In the case of transferring funds to a self-directed IRA custodied by Preferred Trust, clients will need to sign a document from Preferred Trust to authorize the transfer of funds. Once the necessary paperwork is submitted and processed, the funds are transferred directly from the old retirement account to the new one. The timeline for completion may vary depending on the institutions involved and the type of retirement accounts being transferred. Sometimes, the transferring out institution may require the client's involvement in the transfer process. In such cases, the funds may be sent directly to the account holder, who then has 60 days to deposit them into the new retirement account to avoid taxes and penalties.

IRA rollovers and transfers are valuable tools in managing retirement savings. Whether it's consolidating accounts or transitioning between jobs, understanding these maneuvers empowers individuals to make informed decisions about their financial future. As with any financial decision, it's crucial to consult with a financial advisor to assess individual circumstances and goals before proceeding with any retirement account moves.