Individual retirement arrangements (IRAs) are available in two types. A traditional IRA allows a person to save money and let it grow tax-deferred. The account holder pays all taxes on the deposits and gains when the money is withdrawn at retirement. A Roth IRA allows money to grow tax-deferred, but it offers no immediate tax benefits. An advantage to the Roth is that all withdrawals made at retirement age are tax free. IRAs are managed by a trustee, and they can be moved to a new trustee and account of the same type at the account owner's discretion.
Establish an IRA with a new trustee. Approved trustees are in many different places, including banks and brokerage firms. Most mutual fund companies also act as IRA trustees. You should set up the new IRA first so you have a place to move the assets before you attempt to transfer the funds from the previous IRA.
Inform the trustee at your new account that you want to do a trustee-to-trustee transfer. The receiving trustee will help you initiate this transaction, and it should complete all of the necessary paperwork to facilitate the transfer.
Sign the transfer paperwork that the receiving trustee prepares. This authorizes the current trustee to release the money to the new trustee to have on deposit. The new trustee will submit this paperwork to the current trustee, and both trustees will carry out the transfer.
Direct the new trustee as to how to invest the money that you have transferred. IRA account funds can be used to purchase many different types of investments, including bank certificates of deposit and mutual funds, as well as buying individual stocks if your trustee is a stock broker. If you do not specify a type of investment, the trustee may choose a default investment that may not meet your needs.
- You can have the proceeds of your IRA sent directly to you and handle the transfer yourself, investing the funds in a new IRA. You have up to 60 days to complete this transfer without incurring any taxes or penalties. You can complete a transfer yourself this way only once every 12 months.
- If you exceed the 60-day time frame by even one day, the entire IRA distribution will be treated as taxable income. You will owe taxes on the distribution at your regular income tax rate. If you are under age 59 1/2, you will also owe a 10 percent tax penalty for early withdrawal.
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