How to Rollover an IRA: A Step-by-Step Guide

It’s common to ask how to roll over an IRA. You may have found a better brokerage firm or a new bank that you want to use.

Regardless of the reason, it’s important to make sure you follow the proper process. We’ve provided this step-by-step guide to help you do that.

Learn the process to roll over an IRA to a new IRA of the same type. For example, rolling a traditional IRA into a new traditional IRA.

*The process for converting an IRA from one type to another, such as converting a traditional IRA to a Roth IRA is different.

Two Main Methods for IRA Rollovers

There are two main ways to do an IRA rollover:

  • Direct rollovers are easiest since you never have to interact with the fund in your account. The majority of the process is handled by the banks involved.
  • Indirect rollovers involve you receiving funds from your old institution and sending them to your new one.

We recommend that you use a direct IRA rollover whenever possible because they are least prone to the errors that cause significant tax problems.

Direct Rollovers

A direct rollover is the best way to transfer an IRA from one institution to another. It involves the least work for you and is less prone to mistakes than an indirect rollover is.

The first step in doing a direct rollover is opening an IRA at your new institution. This is generally an easy process since your new institution will have the incentive to get you as a customer so it can earn fees by managing your money.

Once you’ve set up your account, the next step would be to contact your new IRA provider and let them know that you want to roll over an old IRA into their institution. The new IRA provider will be more than happy to help you through the process and work with you and the old IRA provider to get the funds moved.

You may have to contact the old IRA provider as well, just to confirm the rollover, but your new provider should handle much of the heavy lifting for you.

Though both institutions involved will have their own rules and requirements on what information you need to provide, you’ll generally need at least the following:

  • Name of the old and new IRA providers
  • Account numbers at both providers
  • Whether you want to transfer the assets in-kind, or as cash
  • How much of the original IRA is being rolled over
  • You’ll also have to fill out the paperwork both institutions direct you to submit. This may involve getting documents notarized, so be ready for a bit of inconvenience during this process.

To summarize:

  • Set up an IRA at the new institution
  • Contact the new and old institution to initiate a rollover
  • Submit any required information and paperwork

Once this process is complete, the money will be sent to your new IRA provider.

Indirect Rollovers

In some cases, you may have to make an indirect rollover of your IRA.

The main difference in this process is that the assets do not pass directly from your old IRA provider to your new IRA provider. Instead, the old provider sends the money to you, and you must forward it to the new provider.

This brings risks because early distributions from an IRA incur tax penalties. That’s why we recommend direct rollovers wherever possible. If you must make an indirect rollover, here is the process:

1. Set up your new IRA.

You want this account open so that you don’t have to wait to deposit your fund after you receive them. If you're doing it online, it can take just 10 minutes.

2. Contact your old IRA provider.

Let them know you’re planning to do an indirect rollover. Because your old IRA provider has the incentive to hang on to your money, you’ll likely hear a number of counter-arguments and warnings.

3. Get your money safely.

Once you begin the rollover, your old IRA provider will transfer the funds to you.

Usually, this happens electronically, or by a check through the mail.

You can let the IRA provider know how much you want to be transferred, and if you’re transferring the full balance, to close the account.

Ensure that the funds are going into the right bank account by double-checking the routing number and account number. If you're getting a check, update your address.

4. Don't withhold taxes.

Make sure that your old IRA provider knows that you know what you are doing and that they do not withhold any money to cover taxes and penalties. You won’t owe anything if you follow the process correctly.

One disadvantage of indirect rollovers is that you cannot do an in-kind rollover this way. That means your money will be out of the market during the process and may miss some gains.

Note: Once you’ve received the money from the old IRA provider, send it to your new provider as soon as you can. You have 60 days from the time the money leaves your old IRA to deposit it to the new one. If you take longer, the transfer will be treated as an early distribution and penalized.

Make very certain that you’re depositing the funds to the same type of account. If you took the money from a traditional IRA, put it into a traditional IRA at your new provider. If you took from a Roth, put it in a Roth.

Rules on IRA-to-IRA Rollovers

There are some rules you need to be aware of when you’re doing an IRA rollover.

60-day window

The biggest rule is that there is a 60-day time limit to complete the process from the time you withdraw the money from your old IRA.

If you take longer, it will be treated as an early distribution from the IRA rather than a transfer.

That means you’ll owe income tax on any amount withdrawn, plus a 10% penalty. Worse, you won’t be able to put the money in your new IRA, which will hurt your retirement savings.

Claim the rollover

Another thing to remember is that you have to notify the IRS of your rollover.

Your old IRA provider will report to the IRS that you’ve withdrawn funds, so you’ll need to report that you’ve placed them in a new IRA to avoid penalties. If you don’t, the IRS will assume you withdrew the money.

12-month rule

Finally, remember that there is a 12-month waiting period for withdrawing money from an IRA after an indirect rollover. Even if you’re over 59½, you’ll need to wait to avoid penalties if you made an indirect rollover.

Frequently Asked Questions

Do you have to sell the investments when doing an IRA rollover?

If you’re doing a direct rollover from one IRA provider to another, you usually have two choices.

One option is to liquidate your investments and transfer the full amount as cash. You can then use the money to purchase investments in the new account.

The other option is to do an in-kind transfer. If you choose this option, your assets will arrive in your new account just the same as they were at your old provider.

So, if you had 100 shares of the ETF SPY at your old provider, your new provider would receive 100 shares of SPY to place in your account.

The benefit of an in-kind transfer is that your money won’t leave the market, so you don’t miss out on potential gains. It also saves you the headache of rebuying all your investments.

What are the fees for an IRA rollover?

The government does not charge any fees for an IRA rollover, but it is common for IRA providers to charge a fee, especially on outgoing rollovers.

One good trick is to ask your new provider if it will foot the bill for the fee.

If they value your business enough, or if you have enough assets, they might be willing to just to secure you as a customer.

How long does an IRA rollover take to complete?

How long the process takes varies based on which companies are involved and whether you’re doing an indirect or direct rollover.

Direct rollovers tend to be faster. Indirect rollovers also depend on how long it takes for you to send the money to the new provider.

Expect it to take at least two or three weeks for the process to complete. Don’t be surprised if it takes closer to a month.

Conclusion

Doing an IRA rollover to a new institution is common, but it can be a stressful process.

Make sure you know what you’re doing and be prepared to handle any unexpected bumps during the process and you can take advantage of the better deal that your new IRA provider is offering.

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