Re: Transferring of IRA funds

Submitted by Gary Tompkins on Mon, 2019-02-18 19:12

Sorry if this is a common topic, I don’t know how to search the forum.
Trying to understand if there are any yearly limits to TRANSFERRING in-kind IRA funds from one investment vehicle to another and/or from one broker/trustee to another.

1. So, I think I understand the aggregate thing to mean all my various ROTH funds, however distributed among different investments, are still considered one ROTH IRA. The same for my Trad IRAs. Please confirm this. (Most all of these funds were rolled over in recent years from a 401-K, before and after I retired. That is history.)

2. I read in the IRS rules that Trustee to Trustee transfers are not limited, but I’m still not clear if I am allowed to move IRA funds at will, whenever I want from one investment to another, sometimes from one broker or trustee to another. Say I earn interest on an investment that cannot be rolled back into that investment and is sitting in Cash with a Trustee. I want to reinvest that money so I want to move it from said Trustee to a brokerage. Or, say I simply want to move some IRA money from an under-performing investment to another one within the same brokerage or from one brokerage/trustee to another. Is there a limit to how often I can do these types of transactions, as long as they are ROTH to ROTH and Trad to Trad?

I hope that’s clear enough. If not, please respond with questions.

Thanks!



Submitted by Alan - IRA critic on Mon, 2019-02-18 20:48

  • Yes, for tax purposes if you take money out of your IRA, the taxable income is calculated using all your IRA accounts of the same type. But if you simply change your investments within any IRA account without removing funds from the account, there is no current tax impact. If you have a brokerage TIRA or Roth IRA, you can buy and sell without limit all kinds of allowed investments within an IRA account.
  • If you want to change IRA custodians, it is best to do so by a direct trustee transfer, and these are unlimited in number. You will not get a 1099R and will not have to report direct trustee transfers.
  • However, if you choose to receive a distribution (check paid to you) and you then do a 60 day rollover to another IRA account (or even back to the same account), you will get a 1099R and have to report the distribution (and rollover if you roll it over) on your tax return. More important, you are only allowed to do ONE such rollover within a 12 month period, so you should move funds by direct transfer whenever possible. With direct transfer you can consolidate multiple IRA accounts into one or you can split one into several different IRAs if you wish. Or you can simply move the account from one custodian to a new one.
  • With a brokerage IRA account holding several different investments (stocks, bonds, mutual funds, ETFs, or brokered CDs, you also will generally have a money market fund to hold your cash. If you sell an investment the proceeds go into your money market fund, and when you purchase a new investment the money to purchase comes out of the money market fund. No limits or restrictions to do this, except you must arrange to have your money market balance high enough to purchase new investments.

Submitted by Gary Tompkins on Tue, 2019-02-19 16:44

I think I understand most of your answer… it’s helpful. But since I was not asking about a distribution, a check to me, it threw me off a bit. I was only talking about transfers from one custodian to another or reinvestments within a single custodian. Although, maybe you thought I might have gotten the funds by check before redepositing/reinvesting.So then, why does reinvestment of that distribution make it a rollover vs ultimately a transfer if done withing 60 days? My last specific concern to be clear, is moving only cash PORTIONS of an IRA, as noted above in my question, from one custodian to another, but since I’m not taking a distribution I assume it’s a ‘trustee to trustee’ transfer inside the aggregate so it’s acceptable to do as often as I need to? Can you please confirm? Thanks again! 

Submitted by Alan - IRA critic on Tue, 2019-02-19 19:39

  • Any change of investments inside an IRA is not a taxable event. That includes either reinvested dividends and cap gains or just mutual fund distribution paid to your IRA in cash. Rollovers and transfers refer to removing funds from your IRA, either paid to you, paid to you and rolled over by you within 60 days or funds directly transferred to a different IRA account either with the same of different IRA custodian. 
  • I think the term distribution is a point of confusion. If a mutual fund in your IRA distributes dividends or cap gains and reinvests by purchasing  more shares the fund refers to this as a distribution from the fund, but that is totally different than a distribution from the IRA. There is no tax reporting for the former, but a distributions from the IRA account itself generates a 1099R that you have to report on your taxes. If you then roll over that distribution from the IRA itself, you report a rollover on your 1040 and no taxes are due (unless the rollover is from a traditional IRA to a Roth IRA, as those are taxable conversions). 
  • Yes, if you do a trustee to trustee transfer of an IRA account including any investments in the account including cash, it is not reportable and not taxable. And you can do an unlimited number of direct transfers. Conversely, if a distribution is paid to you and you want to roll it over by writing a new check to a new IRA custodian within 60 days, you must report the distribution and rollover, but there is no tax due. And for such 60 day rollovers you can only do ONE within a 12 month rolling period. That is why direct transfers are always recommended. They are both easier and safer.

Submitted by Gary Tompkins on Tue, 2019-02-19 21:47

Thanks!

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