If you are new to investing, you may be unsure about the difference between an IRA transfer and a rollover. These two processes are similar, which is why they can be so easily confused. Still, they have key differences. If handled incorrectly, you may face greater costs, so it is crucial to know the difference between a transfer and a rollover before you proceed.

At Accuplan, we want to help you through the process. Below, we cover what an IRA transfer and an IRA rollover are, the factors you should consider to determine how to move forward and why you may want to transfer an IRA to a self-directed IRA with Accuplan.

What Is an IRA Transfer vs. a Rollover?

To distinguish between an IRA transfer and a rollover, you should first understand what each process involves. By understanding the difference between a transfer and a rollover, you may be able to save money and time.

What Is an IRA Transfer?

An IRA transfer occurs when you take funds from your IRA and move your money to another retirement account, such as another IRA or a 401(k) plan, by directly transferring your money between custodians. The IRS does not need to be informed of an IRA transfer.

What Is an IRA Rollover?

An IRA rollover occurs when you move your funds from an IRA to another retirement account, such as another IRA or a 401(k) plan, by receiving the money before putting it into a different account. The IRS needs to be informed of an IRA rollover.

IRA Transfers Overview

An IRA transfer is typically the most basic process for moving retirement funds from one IRA to another, as you do not have to handle the money. With a transfer, funds are typically transferred from one custodian to another, which means you do not have to handle the money yourself and you are not at risk for tax penalties.

With an IRA transfer, keep in mind that your account needs to go into an acceptable type of retirement account. This means your traditional IRA cannot be transferred to a Roth IRA unless you perform a Roth conversion. You can conduct an IRA transfer as often as you need every year, meaning there are no restrictions or limits on transfers between IRAs and financial institutions.

IRA Rollovers Overview

With an IRA rollover, you receive the money before you send the funds into your new retirement account. When you perform an IRA rollover, the distribution is considered tax-free.

Types of IRA Rollovers

If you choose to conduct a rollover, you can select either a direct rollover or an indirect rollover.

• Direct rollover: Moving funds between an employer-sponsored retirement plan or qualified retirement plan that is not an IRA into a traditional IRA is known as a direct rollover. Your funds are sent directly to your new provider, so you do not handle the money before it hits your new account. Though similar to a transfer, the paperwork is different and the IRS knows of the rollover.
• Indirect rollover: Taking possession of your funds before you put them into an IRA within 60 days is known as an indirect rollover. You may take your distribution by check, and then you will deposit your money into another account. Next, you will write a check from the account and send it to your IRA provider.

IRA Rollover Rules

The distribution only remains tax-free if you complete the rollover within 60 days of receiving your distribution. Failing to roll over the money within the 60-day deadline could lead to some negative consequences, such as tax penalties. These tax penalties may include:

• Taxable distribution: Your distribution will become taxable if you do not roll over the funds on time, so you may lose money.
• Early withdrawal penalty: If you are too young to draw from your IRA, you may face an early withdrawal penalty of 10% if the rollover is not completed by the deadline.

To avoid these penalties, be sure to complete the rollover on time and maintain a paper trail that verifies your funds were deposited by the deadline. Unlike an IRA transfer, you can only perform one IRA rollover per year, regardless of how many IRAs you have. This is to prevent IRA account holders from using this money to gain more funds multiple times a year.

The company from which you are moving your funds will send you a Form 1099-R. On this form, you will enter information regarding distributions from IRAs, pensions, annuities, insurance contracts and profit-sharing or retirement plans. You may also receive a Form 5498 on which you will enter your IRA contribution information.

Factors to Consider Before Transferring or Rolling Over Your IRA

To decide whether an IRA transfer or rollover is the right choice for you, there are a few factors you may want to consider, such as what type of retirement plan you currently have, the type of account you want to open and what you plan to do with your funds. You may also want to consider the advantages and disadvantages of IRA transfers and rollovers:

• Pros and cons of IRA transfers: Each year, you can perform an unlimited number of IRA transfers. An IRA transfer is low-hassle and easy to initiate. However, a transfer may be slower and you may need to wait for your old custodian to move your money.
• Pros and cons of IRA rollovers: Typically, rollovers are faster, so this may be the better option if you need your funds quickly. You can also hold your funds for a limited time before you roll them back into an account. However, you are limited in how many indirect rollovers you can conduct each year. You may also be more at risk for penalties and tax consequences if you choose a rollover.

Transfer IRA to Self-Directed IRA With Accuplan

At Accuplan Benefits Services, we offer a self-directed IRA you can use to direct your retirement funds into both traditional and alternative assets. Standard IRAs limit the assets you can invest in to more conventional categories, such as mutual funds, stocks and bonds. When you choose a self-directed IRA from Accuplan, you can invest in popular alternative assets, such as cryptocurrency, rental properties, loans and precious metals.

We have a deep understanding of IRS rules and regulations, so you can maintain your self-directed IRA’s tax-advantaged status. Contact us at Accuplan to learn more about the differences between an IRA direct transfer vs. rollover or open an account to transfer IRA funds.

*Our content should not be relied on for investment advice but simply for informational or educational purposes only. Our information is not meant to provide, nor should it be depended on for advice regarding investment, tax, legal or accounting concerns.