If you have an existing retirement plan and want to move those funds into a self-directed account, rest assured you will encounter the words “transfer” and “rollover.” Many people believe IRA transfers and rollovers can be used interchangeably, but they are actually very different. Each has different tax treatments and rules that you need to know in order to decide which transaction best suits your needs.
Midland handles both IRA transfers and rollovers regularly, as more and more individuals are choosing to use self-directed retirement plans.
Rolling Over A 401(k)
The best example of a rollover is when you have a 401(k) and would like those funds moved into an IRA. Provided the funds are portable, an individual can rollover the 401(k) funds into an IRA in two ways: a direct rollover or an indirect rollover. A direct rollover sends the funds from your current plan administrator directly to another administrator. An indirect rollover, on the other hand, involves the funds from the plan administrator being given to the plan participant, with the intent to place those funds into an IRA. Because the funds are actually touched by the plan owner, this transaction is reported to the IRS. The plan participant then has 60 days to deposit the funds into another retirement account. If this does not occur within the 60-day time-frame, the account owner is required to report the rollover funds as income for that year and as well as pay taxes on that amount. If you are talking about a Qualified Plan such as a 401k rollover, and it is done indirectly, the plan administrator will automatically withhold 20%. The client would have to come out of pocket to send the full amount (prior to withholding) to the new custodian and essentially has given the IRS an interest-free loan. If you decide to perform an indirect rollover, then you can only do so once every 12 months.
Transferring An IRA
An IRA Transfer (trustee-to-trustee transfer) occurs between like accounts. For example, a Traditional IRA can “Transfer” to another Traditional IRA at a different custodian. A transfer is used when you have existing IRA funds at one custodian, but want to move them directly into a new IRA housed with another custodian. A transfer can be performed unlimited times and can be a cash transfer or an in kind transfer of an asset.
Do you already have an IRA? Chances are, you’ve been down this road before and perhaps the process hasn’t gone as smoothly as you would’ve liked. Midland has you covered. Transferring an IRA is as simple as completing our Transfer Form. Some custodians require originals, but many accept scans, so the best approach is to email your completed form to our service team, and we will follow-up if the transferring institution requires an original. All-in-all, the transfer process takes an average of anywhere from 2 – 7 business days, so be sure to plan accordingly. Having cash readily available in your account allows funds to be available for any pending investment purchases, unexpected asset-related expenses, and annual administrative fees.
Midland Trust is a self-directed retirement plan administrator serving clients across the nation. Our staff is experienced in handling IRA transfers and rollovers and can help you navigate the process should you decide you want to take control of your retirement funds and start using self-directed plans.
Contact us to get started self-directing an IRA today at 239-333-1032!