There are many ways to fund your IRA—after making contributions, a transfer or rollover is the most common. Often these words are used interchangeably, but there are differences between the two. Here, we help you understand transfers and rollovers, and their financial implications.

Transfer: One IRA to another IRA of the same type

A transfer is a direct movement of assets from one IRA to another IRA. Whether Traditional or Roth, the type must be the same for both accounts. Exceptions are limited to transfers between Simple and Traditional IRAs following a two-year waiting period for the Simple IRA. Transfers are not taxable or reported to the IRS, because assets are never made payable or distributed to the taxpayer. They move directly from one IRA to the other. There are no limits as to how many transfers can be made in a year or per IRA.

Rollovers:  Direct and Indirect

There are two types of rollover transactions: a direct rollover and an indirect rollover.

Direct rollover: Assets never pass through the individual’s hands

  • From an IRA to an eligible retirement plan
  • From an eligible retirement plan to an IRA, or
  • From an eligible retirement plan to another eligible retirement plan.

In a direct rollover, the individual never takes constructive receipt of the assets—in other words, the assets never pass through the individual’s hands. Direct rollovers, unlike transfers, are reported to the IRS, but are not taxable (unless pretax assets from an eligible retirement plan are moved to a Roth IRA), because assets are never made payable or distributed to the taxpayer. There are no limits as to how many direct rollovers can be made in a year.

Indirect rollover: Distribution from an IRA rollover

An indirect rollover consists of a distribution from an IRA that is rolled over into:

  • Another IRA of the same type* (see below), or
  • An eligible retirement plan, or a distribution from an eligible retirement plan that is rolled over into another eligible retirement plan or IRA.

The individual takes constructive receipt of the assets and rolls them over within 60 days. An individual is allowed only one IRA-to-IRA rollover per 12 month period. This restriction does not apply to an IRA to eligible retirement plan rollover, an eligible retirement plan-to-IRA rollover, nor to an eligible retirement plan-to-eligible retirement plan rollover. Some amounts, such as Required Minimum Distributions (RMDs), cannot be rolled over.

*The exception to this rule involves a rollover from a SIMPLE IRA to a Traditional IRA or a rollover from a Traditional IRA to a SIMPLE IRA once the two-year waiting period for the SIMPLE IRA has been satisfied.

Please refer to our Eligible Rollover Chart for more examples.

What should you expect when rolling over your assets?

Moving assets from one institution to another is generally straightforward. However, to avoid any delays in processing, keep these factors in mind:

  • Prior to completing any paperwork, contact the resigning custodian to verify its requirements to move funds.
  • Depending upon the resigning custodian’s requirements, the transfer process may take 1 to 3 (or more) business weeks.
  • Virtually all resigning custodians will require you to complete their own paperwork to initiate the process.
  • To ensure the funds are applied to the correct account and in the right manner, the titling of your funds is of the utmost importance.

This material is provided for general educational and informational purposes only and should not be considered to be legal, tax or investment advice.  Provident Trust Group, LLC is a non-discretionary, passive, directed custodian that does not sell or solicit investments and does not provide investment advice or recommendations. Provident Trust Group, LLC is not obligated to review and does not endorse any investment or investment advisor, and individuals are responsible for the investments in their accounts.  Consult with a tax and/or financial advisor to determine what may be best for your individual needs.

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