Traditional IRA vs. Rollover IRA

I will be transferring pre-tax IRA funds from one custodian to another in a trustee-trustee transfer. The New Account Application for the firm that will receive my current IRA allows for four types of IRAs — Traditional, Rollover, Roth, or SEP — and I must check one of these boxes.

It seems to me that over the years, the difference between a Traditional IRA and a Rollover IRA has become blurred to the point where in many situations, there might be no difference whether the account is designated as a Traditional vs. Rollover IRA, because both of these account designations accept 401(k) rollovers, both accept deductible and non-deductible $5,000/6,000 contributions, etc.

Can you think of any situation where it would matter whether I checked the Traditional vs. the Rollover box … for example, if I checked the wrong box I would lose the ability to do something in the future, etc. I can’t think of any situation in which it matters which box I check, yet there must be a difference or the brokerage firm wouldn’t make a distinction between the two types of IRAs on their New Account Application. Thank you!



There are 3 advantages a rollover IRA has over a non rollover traditional IRA, but they won’t matter for most people.

1) Some employer plans that accept in coming rollovers from IRAs restrict those to rollover IRAs because they think there is less chance of receiving IRA basis with this restriction
2) Creditor protection – in states that do not fully protect IRA accounts, the federal bankruptcy protection is limited to 1mm for non rollover IRAs and is unlimited for rollover IRAs
3) For a taxpayer born before 1/2/1936, their 10 year tax option and cap gains option remain if their plan accepted an incoming rollover IRA, but not a non rollover IRA.

There is little consistency in how IRA custodians treat the “rollover” title after opening the account. Many will not delete the “rollover” if the taxpayer rolls a non rollover IRA into the account or makes a regular contribution to the account. They should, because a rollover IRA (formerly called a conduit IRA) is meant to reflect an IRA that only holds funds transferred from an employer plan. It is not clear whether the final determination of whether an IRA is a “rollover” account or not lies with the title on the account or the actual source of the money.



Thank you for the good explanation.



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