by Donn J. Sinclair, MBA Personal Financial Advisor August 1, 2022
Your retirement plans should portable; as well as, tax-favored investments. Normally, you should be able to transfer assets directly from one trustee to another; an indirect or direct IRA Rollover; or process transfers incident to a divorce. You may also want to consider possible tax advantages of moving some of these retirement plan assets to your Roth IRA. Your personal tax advisor should be able to help you in this area.
Trustee-to-Trustee Transfers send your retirement assets directly from one like-type account to another. Moving funds from a former 401(k) to your new 401(k), is an example of a Trustee-to-Trustee Transfer. Normally you can also move Traditional IRA funds via a Trustee-to-Trustee Transfer from one IRA to another like-kind IRA. This is a very convenient way to move funds between IRAs and other retirement accounts. Your current trustee may actually U.S. Mail you the check; however, the check is normally payable to your new trustee for your benefit. Upon receipt of such a check, you then should immediately deliver or send that check to your new trustee.
IRA Rollovers can also be tax-free distributions to your new or existing IRA from non-like retirement accounts. For example, from your 401(k) or 403(b) to your IRA Rollover. The rollover check may be sent to you, or sent directly to your chosen IRA or Roth IRA plan.
Some rollover limitations include that you normally may only make one tax free indirect IRA Rollover in any one year period. This restriction should apply whether you have one or more IRAs. Direct IRA Rollovers are normally exempt from this limitation. A direct IRA Rollover sends the funds directly from one custodian to your new custodian. Please remember that you must complete any indirect IRA Rollover within 60 days from when the funds left your former trustee. That is, they should arrive at your new trustee within the 60 day IRA Rollover period.
Example: Sarah recently moved from her Charlotte NC job for a shorter commute with an employer in Rock Hill SC. She is working on her graduate degree at Winthrop University, and needed more study time that a shorter commute from her Rock Hill SC home provided. Sarah was employed full-time had worked at her Charlotte employer for seven years, and had saved over thirty thousand dollars in her Charlotte employer’s 401(k) program. Sarah has decided to move her funds from her old 401(k) to her IRA Rollover. Sarah had her personal financial advisor start the direct rollover process, and have her funds sent directly from her old 401(k) to her new IRA Rollover. This should be a non-taxable event, therefore Sarah will have no taxes withheld from her old 401(k) distribution. This way, all of her old 401(k) assets will be at work for Sarah in her new IRA Rollover.
The check will be made payable to her new IRA rollover, and U.S. Mailed to Sarah. She will still need to forward the check to her new IRA Rollover. Remember, that the rollover check is made to her new IRA Rollover, and therefore this is still a direct rollover.
Donn J. Sinclair, MBA Personal Financial Advisor
Updated in Charlotte NC and Rock Hill SC
August 1, 2022 (803)329-0609
DJS: More information is available at IRS.gov
See Publication 590-A and Publication 590-B.
