There's More Than One Way to Move a Roth IRA | Ed Slott and Company, LLC

There's More Than One Way to Move a Roth IRA

By Joe Cicchinelli, IRA Technical Expert
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If you have a Roth IRA, you may want to move it to a different IRA custodian. Perhaps you hired a new financial advisor who uses a different financial organization than the one where you currently have your Roth IRA. Or maybe you’re looking for a custodian with less expensive fees or are simply trying to diversify your investments. Whatever the reason, you can move your Roth IRA funds to another Roth IRA at any time. There are two ways to do that; using a rollover or a transfer. Generally transferring your Roth IRA funds is less problematic than rolling them over.

In a Roth IRA-to-Roth IRA rollover, you would first take a distribution from your Roth IRA. When you take a distribution, you have control of the money. For example, the IRA custodian would write a check from your Roth IRA that’s made payable to you personally. You then have 60 days after you receive the distribution to roll over the finds to another Roth IRA. The problem is, if you don’t complete the rollover within that time frame, it is no longer eligible for rollover. That means the Roth distribution may be taxable or subject to the early distribution penalty and the future investment gains on that money won’t grow tax-free. Note: You can only roll over Roth IRA funds to another Roth IRA; you are not allowed to roll over your Roth IRA funds to your company’s retirement plan, such as a Roth 401(k) plan.

There’s another potential problem with a Roth IRA rollover. You’re only allowed to rollover IRA funds once every 12 months because of the once-per-year rule. The 12 month period is a full 12 months. So let’s say you received a Roth IRA distribution in July that you rolled over within 60 days. You wouldn’t be eligible to do another rollover until the following July. Due to a recent Tax Court decision, an individual can do only one rollover per year no matter how many IRAs or Roth IRAs he or she may have.

Instead of doing a Roth IRA rollover, you could instead move your Roth IRA money using a direct transfer. In a direct transfer, the funds would be moved directly to another Roth IRA without you having control of the money. Transferring your Roth IRA money is better because the rollover rules do not apply. With direct transfers, there is no 60-day rule and no once-per-year rollover limit. You can do an unlimited number of trustee-to-trustee transfers within a year. 

 

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