Making Money Moves: Understanding IRA Transfers and Rollovers

When you leave your job, one of the things you will have to consider is what you will want to do with your old 401(k). A common option is to roll it over into an IRA at a custodian who can help invest your money in publicly traded investments. For some people, this is great. However, for those who want to take true control of the hard-earned money they have been saving and have the options to diversify their investment portfolio… they take a different route. Moving your old 401(k) into a Self-Directed IRA, like the accounts we have at Quest, allow investors the option to put their money in alternative investments and privately held assets. Even for those who may already be investing an IRA and do not have a 401(k) anymore, your investment options expand whenever you perform a rollover or transfer into truly self-directed IRA.

What Account Do I Move My Money To?

Moving your money between accounts might seem like a daunting task at first, but we’ve broken it down to explain the way retirement accounts move. One of the first couple of things you will want to ask yourself are “What type of self-directed account do I want to have?” and “What type of account do I currently have?” Asking yourself these two questions will help you make sure you move your funds to the correct self-directed accounts. Not all IRA accounts have the same tax benefits, and it is very important to remember what tax advantages each account has, that way you can always do your best to accurately move your funds to the correct account, keeping the taxes the same. This eliminates tax reporting you could create for yourself and ensures the smoothest movement from one custodian or entity to another.

So, what’s the actual difference between a rollover and a transfer?

How do you know when to initiate a transfer or when to do a rollover? These terms often get confused and misused, but they have very certain traits that define the type of movement they perform. It’s important to know the difference between the two, also. The most distinguishable difference is that an IRA transfer occurs when you move funds between like accounts or one IRA to another IRA, for example Traditional IRA to Traditional or Roth IRA to Roth IRA. If you want to move money between two different types of retirement accounts, for example a 401(k) to IRA, that’s would be considered a rollover. Rollovers between IRAs can be done, but certain rules are attached when this movement occurs.

IRA to IRA rollovers can occur, but it’s very important to be aware of the rules. Often times, custodian processing times can vary anywhere from a couple of days to weeks; this will depend on your current IRA custodian’s transfer procedures. If you don’t want to wait on a custodian to go through the transfer process, you do have the option to do what is called a “60 day rollover”, meaning you have 60 days from when you get the funds to put the funds back into an IRA account In this scenario, the funds are sent to you and you are responsible for putting them into a retirement account. Whatever portion is not rolled back into an IRA will generally be taxable and subject to a 10% penalty. You are limited to doing only 1 of these IRA to IRA rollovers per year, and if you exceed this number, the second rollover is then treated as an excess contribution.

There are other characteristics that define the two, and rollovers have certain rules that must be followed. This chart outlines the common characteristics of a Transfer vs a Rollover.

How do I initiate a transfer/rollover?

Now that you know the difference between the two and have decided which is going to be the best for you and your account, you can begin moving your funds. To initiate a transfer, you will want to complete your receiving custodian’s Transfer Form by printing and sending back a completed copy to the office. This will allow the receiving custodian to send this off on your behalf. Some custodians will require original forms, notary or medallion stamps, and statements of your current; others will simply accept a fax. Calling your self-directed custodian can help during this process if you are unsure of a custodians requirements. Once the form is sent, the last step is to simply wait for the funds to arrive back at your new account. It is helpful in the meantime or even before, to let your current custodian know you want to liquidate your assets that way your account is in a cash state. This can eliminate rejections that can sometimes occur when transfer requests are made. Typically, within a few days or weeks, the transfer will be complete.

If you are going to be initiating a rollover, you will need to be aware that there are usually more forms for this movement, often at the former employer or custodian. Distribution paperwork from the employer you are leaving or the IRA custodian you are moving from is customary. Contacting them to provide your account number and any delivery instructions on their distribution forms will need to be done in order for this movement to occur. The custodian receiving the funds may have an internal form (like the Rollover Form) that will need to be completed for the incoming funds, but it’s important to note that this form does not initiate the actual movement. That is done by the account holder initiating the distribution/rollover request from the previous/former custodian.

If you ever have any questions or need assistance, call us at 855-FUN-IRAS and a Quest representative can help with this process.

There’s no need to be intimidated when rolling over or transferring IRA funds. From beginning to end, the process is quite seamless once you understand the different types of movements and their processes. At Quest, we have a whole department focused on the portability of your funds and can help with a transfer or rollover question you might have. If you’re ready to start moving your funds over to a self-directed account to invest, let us know how we can help with the process or simply provide more education! For more information, visit www.questtrustcompany.com .

Here is a helpful portability chart to help you decide which accounts can be move between each other!

Check out this video on how to fund your Quest account today!

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