One of the main advantages of having an IRA over a 401(k) plan is that the transfer rules between IRAs are so flexible. In general, one can transfer IRA funds between IRAs anytime and without limitation.  In addition, all direct IRA transfers are tax free.  IRA transfers are the most common way to move IRA funds to a Self-Directed IRA with IRA Financial.

This article will explore the IRS rules involving IRA transfers.  Additionally, it document the difference between direct and indirect IRA transfers.

IRA Transfer Rules

Direct IRA Transfer

In general, an IRA owner can transfer, tax-free, assets (money or property) from one IRA to another IRA.  IRA transfers can be done without limit during a taxable year. Whereas, a transfer of 40(k) funds to an IRA or vice-versa is known as a rollover.  IRA transfers are not subject to any vesting or age requirements such as 401(k) plan rollovers.

The IRA funds move directly from one IRA custodian to another. You can simply request a transfer from your current custodian to IRA Financial. Then, you can start self-directing your IRA assets as you wish.

Indirect IRA Transfer

An indirect transfer is when IRA assets are first transferred to the IRA owner before the funds are re-transferred to another IRA.  In the case of an indirect IRA transfer, the IRA owner has 60 days to use the funds before they must be contributed to the new IRA.

The funds can be used for any purpose, including personal or business reasons. Failure to comply will cause the IRA to be subject to tax and potentially a 10% early distribution penalty if the IRA owner is under the age of 59 1/2.

It’s important to note, an indirect transfer can only be done once every twelve months for all your IRAs in the aggregate.  For example, if one has two IRAs, one at Bank X and the other at bank Y.  If the IRA owner elects to do a 60-day indirect IRA transfer from Bank X, the IRA owner cannot do an indirect transfer again from Bank X or Bank Y for twelve months. To be clear, an indirect transfer cannot be done once per calendar year. You must wait a full year before you can perform another one.

IRA Transfer vs. Rollover

As mentioned above, an IRA transfer can be done anytime between IRAs.  Whereas, in the case of a 401(k) plan rollover, the 401(k) plan participant must generally satisfy a plan triggering event in order to get access to their 401(k) plan funds.

Generally, a triggering event follow into one of the following categories:

• Over the age of 59 1/2
• Separate from your job
• Plan is terminated

Hence, if a 401(k) plan participant is not able to satisfy a plan triggering event or a hardship exception, the plan participant will likely not be eligible to engage in a direct or indirect rollover to a Self-Directed IRA with IRA Financial.

Of course, if you have retirement plan funds from an old employer, you can roll over those funds at any time. Essentially, you have already had a plan triggering even in that instance.

Another drawback of the 401(k) rollover is that the amount indirectly rolled over is subject to a withholding tax. You can’t take advantage of the full amount withdrawn.

Obviously, an IRA transfer is usually the preferred option for funding a new Self-Directed IRA. There are no triggering event or vesting requirements, and no tax is withheld.

Two Easy Steps to Transfer IRA Funds to IRA Financial

It is now easier than ever to set-up a Self-Directed IRA and fund it with a tax-free transfer of IRA funds to IRA Financial so you can invest in alternative assets on your own.

IRA Financial will then complete the tax-free IRA transfer for you.  We will work with your IRA custodian to initiate the transfer and notify you when the IRA funds have arrived.  You will then be ready to make your Self-Directed IRA investment.  It’s super easy and tax free!

Conclusion

If you have an IRA at another custodian and are not happy with your investment options, it’s time to look elsewhere. IRA Financial is the leading self-directed retirement platform available. There are lots of options out there, but many of them focus on one specific asset class, such as real estate or cryptocurrency.

What sets IRA Financial apart from the rest is the ability to invest in anything you want. Plus, there are no hidden fees. You pay one annual fee; no wire or check fees, no transaction fees, no asset value fees, and there is no minimum balance required. It’s easy to get started and there’s no obligation until you fund your account.

IRA funds can be easily transferred from your current custodian to IRA Financial at any time. Plus, if you need the use of those funds for a short time, you have the ability to perform an indirect transfer. Just make sure the funds withdrawn are contributed to your new Self-Directed IRA within 60 days. Of course, if you have old 401(k) funds, you can roll those over too! Just remember, you cannot roll over retirement funds at a job you are currently employed at.

If you have any questions, please fill out a contact form below, and we will be happy to assist you. Take control of your future now!