IRA Transfers

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General

• A transfer is the tax-free movement of cash or other assets from one IRA to another IRA. Some call these transactions direct transfers. Take your pick. Either term or phrase works. Both mean the same thing. Transfers can be used with both traditional accounts and Roth accounts. Transfers cannot be used to move funds between Individual Retirement Accounts and qualified plans. A qualified plan is an employer plan such as a 401-K plan, a 403-B plan, a 457 plan, or other defined benefit or defined contributions plans. For purposes of these rules, an IRA is not a qualified plan.

• A transfer is not a rollover and is not affected by the one year waiting period.

• There is no limit to the number of direct transfers that an account owner can make in a given time period.

• Transfers can be internal or external meaning within one custodian or trustee or between two different custodians or trustees.

• The 60 day restriction on rollovers does not apply to transfers.

• The accountholder should initiate a transfer through the custodian or trustee that will receive the funds.

• Transfers are not reported to the IRS on Form 1099-R or on Form 5498.

Restrictions

• Individual retirement assets must move directly from one Individual Retirement Account to another Individual Retirement Account.

• Transfers cannot be made from any type of retirement account to a non-retirement account such as a checking account.

• Transfers cannot be made from a Roth account to a traditional account or to a qualified plan. Don't confuse this with a recharacterization from a traditional account to a Roth account. Recharacterizations are legal but are not handled as rollovers or transfers. They are recharacterizations which require special coding and reporting to the IRS by the custodian or trustee.

• Transfers cannot be made from a traditional account to a Roth account or to a qualified plan. Again, don't confuse this rule with a conversion from a traditional account to a Roth account. Conversions are also legal but are not handled as rollovers or transfers. They are conversions which require special coding and reporting to the IRS by the custodian or trustee.

• Transfers cannot be made from a qualified plan to a traditional account or to a Roth account.

Transfers and Death

• Spouse beneficiaries can transfer an inherited IRA to another individual account of the same type (traditional or Roth).

• Non-spouse beneficiaries can transfer an inherited account to another custodian or trustee as long as the account is transferred in the name of the decedent (Jane Doe as Beneficiary of Mary Doe’s IRA).

Transfers and Required Distributions

• Traditional accounts can be transferred to another custodian or trustee without taking a required distribution.

• The required distribution for the year of the transfer must be taken from the new custodian or trustee by the appropriate deadline.

Transfers and Divorce

• Transfers must be used to handle divorce settlements involving Individual Retirement Accounts.

• The transaction is called a “transfer incident to divorce.” To be legal the transfer cannot occur until:

1. The divorce is final.

2. The custodian is in possession of a certified copy of the divorce decree.


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