Move IRA Funds Using Transfers to Avoid Problems

By Joe Cicchinelli, IRA Technical Expert

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Whenever you move IRA money into another IRA at a different financial institution, it can be done in one of two ways. First, you could take a distribution from your IRA that is payable to you and roll over the money to another IRA. The second way is to transfer the funds directly from one IRA to another IRA. We recommend that you move IRA money using the direct transfer method to avoid problems.

Transferring money between IRAs is sometimes called a direct transfer or a trustee-to-trustee transfer. In a transfer between IRAs, you don’t have use or control of the money. It can be done a few different ways. For example, the funds could be mailed directly from your current IRA custodian to the new IRA custodian. Or the funds could be sent electronically via a wire transfer.

An IRA transfer can even be done using a check, as long as the check is made payable to the receiving IRA custodian for benefit of your IRA. In other words, the check cannot be made payable to you personally. For example, an IRA transfer check might be made payable as follows, “Philadelphia Bank for benefit of Jane Doe’s IRA,” or something similar. Even if the current IRA custodian will allow you to hand deliver your IRA transfer check, it still qualifies as a transfer because you cannot cash the check since it is made payable to another financial institution for deposit to your IRA.

The reason IRA-to-IRA transfers are the better way to move IRA money is because the IRA rollover rules don’t apply. For example, there is no one rollover per year limit when transferring IRA funds. Also there is no sixty-day clock ticking to complete a transfer. Without these limits that apply to rollovers, there is less risk that something will go wrong when you’re moving your IRA money to another IRA via a direct transfer.