IRA Rollovers & Transfers: Similarities, Differences & FAQs

(March 28th, 2008)

What's the Difference between an IRA Rollover and IRA Transfer?

An IRA Transfer is when the retirement assets of an individual are transferred from one financial institution (IRA Management & Investment Firms) to another, without the IRA owner taking ownership and risk of the assets. By Transferring their IRA Assets, IRA owners do NOT have to pay tax on these withdrawals and do not risk loss of investments if anything happens along the way. Furthermore, unlike IRA Rollovers, you can carry as many IRA transfers during the taxation year as you'd like, there's no maximum limit.

An IRA Rollover occurs when a retirement saver rolls over his assets from a Qualified Retirement Plan (example 401k plans) into an Individual Retirement Asset (IRA). Unlike IRA Transfers though, an individual is limited to 1 IRA Rollover every 12 months. There are 3 types of IRA Rollovers, we summarize them below:

1) IRA Rollover

An IRA Rollover occurs when an individual has personally withdrawn money from his IRA Assets for personal use. If this is the case, the individual has 60 days to rollover this distribution to another IRA. If the distribution is not rolled over to another IRA within 60 days, the individual will have to pay the local state & federal taxes as well as a 10% Early Withdrawal Penalty Fee.

2) Qualified Retirement Plan Rollover

A Qualified Retirement Plan Rollover occurs when an individual takes personal possession and responsibility of his IRA assets and does NOT do an IRA Transfer within 60 days. Once the IRA assets are distributed, the plan administrator will withhold 20% of the amount for tax purposes and 80% of the assets will be distributed to the IRA account owner. This complication makes Qualified Retirement Plan Rollovers a less attractive choice.

3) Qualified Retirement Plan Direct Rollover

The Direct Qualified Plan Rollover is probably your best bet. Similar to the IRA Transfer, the IRA Asset owner can rollover his assets directly from one financial institution to another without having to pay any taxes, and the 10% early withdrawal penalty fee. The only exception is that you are allowed to do a Direct IRA Rollover once every 12 months.

How Does the IRA Transfer Process Work?

You should first open an account with a Financial Institution of your choice. Upon doing this, you will be assigned an IRA Investment Manager who will guide you through the rest of the Rollover/Transfer process with the guidelines of the bank.

Am I Supposed to Rollover My Entire IRA Asset Balance?

No, you can transfer or rollover as little or as much as you want. But remember, Qualified Direct Retirement Plan Rollovers can only be done once a year, so you do not have 2 choices. You can only rollover one amount per year.

Do I Have to Liquidate My Investments (Turn into Cash)?

No you can maintain your investments in their original kind and still roll them over to an IRA. However, you will need to bring registration papers of the assets and fill out many forms, as opposed to rolling over a liquid cash amount.