If you plan to move funds between IRAs of the same type (e.g., traditional-to-traditional or Roth-to-Roth), you can move them in either a transfer or a rollover.
While both options will produce the desired result of moving your IRA assets, the major difference lies in who has access to the money and, therefore, the possible tax implications.
Here’s how the two processes compare and factors to consider when determining which option to choose based on your needs.
What is an IRA-to-IRA transfer?
An IRA-to-IRA or trustee-to-trustee transfer occurs when the IRA assets are made payable to the new financial institution. A transfer can be completed by moving the balance directly to the new provider through a wire or ACH transaction or via a check. If a check is sent, it may either be mailed directly to the new provider or sent to you for you to forward on to the new provider. Either way, the check will always be made payable to the financial institution.
Generally, a transfer is the preferred option to move funds between two IRAs of the same type due to the following reasons:
Unlimited: You can use this method to move your assets between your IRAs as often as you choose.
No deadline: There is no 60-day time limit for depositing funds into the new IRA.
Nontaxable: Transfers are nontaxable and nonreportable, therefore, you will not receive a Form 1099-R.
When you request a transfer from a Guideline IRA, the check will be mailed to you but made payable to the new financial organization. To complete the process, you can simply mail the check to your new provider according to their transfer process.
What is an IRA-to-IRA rollover?
An IRA rollover, also known as a 60-day rollover, is when a cash distribution from an IRA is made payable directly to you. It is then your responsibility to deposit these funds into another IRA of the same type within 60 days of receiving the funds.
The rollover deposits can be made separately as long as the entire amount is rolled over within 60 days. The time limit starts the day after you actually receive the money, which could be the day the ACH was deposited into your bank account or the day you receive the check in the mail.
One reason an IRA rollover may be beneficial is that it allows you to have access to your IRA funds if you need to use them during the short rollover period.
However, there are several implications to consider before initiating an IRA rollover:
Tax withholding: The same withholding rules for cash distributions apply to IRA rollovers. If taxes are withheld from your distribution, the entire amount, including any amounts withheld, would need to be rolled over to the new IRA within 60 days to avoid a taxable event.
One-per-12-month rule: You are only eligible for one IRA rollover during a rolling 12-month period. The 12-month time frame begins on the date of distribution from your IRA and applies across all of the IRAs you have. If you perform more than one IRA-to-IRA rollover during the 12-month period for any of your IRAs (including both Roth and traditional), only the first rollover satisfies the IRS rollover rules. Any subsequent rollovers within that 12-month time frame would be considered ineligible. Note that conversions from traditional to Roth IRAs are not included in the one-per-12-month rule.
RMDs are not eligible: If you have reached the age to take required minimum distributions (RMDs), your RMD would need to be distributed from your IRA before the rollover is processed.
Same assets: You must re-deposit the same assets that you received in the distribution. For instance, if you receive a distribution of cash, you cannot use that cash to purchase stock or property and then subsequently rollover those assets in kind. Instead, only cash can be rolled over to maintain the tax deferred status of the funds.
There are certain circumstances where you may be eligible for an extension or waiver of the 60 days. Consult your qualified tax advisor for any questions or guidance related to an ineligible rollover.
What happens if I make an ineligible rollover?
Rollovers that are not completed according to the IRS rollover rules or that consist of funds that are not eligible for rollover (e.g., required minimum distributions or excess contributions), may be subject to taxes and penalties.
The potential consequences of an ineligible rollover can include:
The ineligible rollover amount becomes taxable income, and unless you qualify for a penalty exception, the amount may also be subject to an additional 10% early withdrawal penalty tax if you are under age 59 ½.
You lose the ability to continue to accrue tax-deferred earnings (or tax-free earnings in the case of a Roth IRA) on the amount, which could negatively impact your retirement savings.
Invalid rollovers are considered regular IRA contributions for the current tax year, which could result in excess contributions and excise penalty taxes if not removed timely.
Failure to remove an ineligible rollover amount and any applicable earnings from your IRA by your tax filing due date (plus extensions) could result in being double-taxed on the amount. In addition, if the ineligible amount is not removed by the deadline, you may owe the IRS a 6% excise tax on the ineligible rollover amount for every year it remains in your IRA. The excise penalty tax can be assessed for up to six years from the date you file your federal tax return for the year the ineligible rollover occurred.
How do I request an IRA transfer or IRA rollover from Guideline?
Moving your IRA to Guideline
If you would like to move your IRA from another provider to Guideline, you should ensure that you’ve opened an IRA with Guideline before the transfer or rollover of IRA funds is initiated.
After setting up your IRA, click on your name in the main menu, then select Inbound rollovers. Next, click the “Add a rollover” button and answer the questions regarding your existing account. You will then be provided with instructions for requesting the check from the other provider and mailing it to Guideline.
Please note, that although this is called a “rollover” in the dashboard, as long as the check is made payable to Benefit Trust Company for GDL, as outlined in the instructions, it will be considered a direct transfer and not subject to the 60-day rules. (Benefit Trust Company is the custodian that holds all Guideline funds.)
Moving your Guideline IRA to another provider
You also have the option to transfer or rollover your Guideline IRA to another IRA provider.
To do so, click on your name in the main menu of the dashboard, then navigate to Transfers. Next, click the “Start a transfer” button and select the type of distribution you’d like to take. The directions for completing the process and the timeline you can expect will then be displayed based on your selection.
Note that if you select the option to move your funds to another institution, Guideline will treat this selection as an IRA-to-IRA transfer to prevent you from incurring taxes and penalties. You’ll want to confirm the check payee information with the receiving provider, as it may be different from the name of the company itself.
The information provided herein is general in nature and is for informational purposes only. It should not be used as a substitute for specific tax, legal and/or financial advice that considers all relevant facts and circumstances. You are advised to consult a qualified financial adviser or tax professional before relying on the information provided herein.