There are many reasons why you might want to move your retirement funds from one institution to another, through an IRA to IRA rollover, including better service, increased investment options, and enhanced returns.
If you have a number of IRAs, you can roll over funds into one, and put your entire retirement investment in a single account, which is easier to manage. However, even though it is completely possible for you to roll over your existing IRA, it is important to note that your ability to do so is dictated by a number of rules. If you do not follow these rules, you may end up losing the tax-deferred status of your retirement savings and paying an early withdrawal penalty as well.
To find out whether you can roll over your existing IRA, read on below.
The 60 Day Rule
If you want to make a tax-free rollover, you must complete the rollover within 60 days of receiving the funds in question from the existing IRA. It is important to note that the window is sixty days and not 2 months.
If you fail to complete the rollover, the transaction is treated as a withdrawal and hence taxed as regular income. Furthermore, if you have not attained the age of 59½ years or older, you will be charged a 10 percent early withdrawal penalty.
The 1 Year Waiting Rule
Once you distribute the assets of one IRA and then roll over a portion of those assets to another IRA, you cannot make another tax-free rollover for a year.
However, this rule does not apply if you want to roll over eligible funds from an employer’s plan. This, therefore, means that if you want to roll over from a qualified plan or account, you can do so numerous times within the same year. You can also rollover funds from a traditional IRA to a Roth IRA numerous times a year, as this rule also does not apply to Roth Conversions.
The Same Property Rule
You cannot take the assets from your existing IRA and then use them to purchase other assets and then purport to roll over those new assets into the same or new IRA. Simply put, for any rollover to stand, it must be made up of the same assets/property.
Any portion of the distribution from an IRA that is used to purchase other assets before the rollover is complete is treated as a withdrawal and hence taxed at the normal rate. A 10 percent early withdrawal fee will also be charged on that portion of the distribution if you are younger than 59½ years.
The Required Minimum Distribution (RDM) Rule
Last but not least, you cannot roll over your Required Minimum Distribution (RDM) if your age has surpassed the 72-year limit. Even though you can roll over your IRA at any age, a rollover involving the RDM would be considered to be an excess contribution.
After reading the above, you should have a clear answer as to when you can, or cannot, roll over your existing IRA.