Rollovers, Distributions and Transfers: Learn about the Different Ways of Directing Money to or from an IRA

By Elsie Dudukovich0 Comments
 
Understanding the different methods of moving money to or from an IRA is a starting point for making appropriate decisions to towards achieving your goals. Here’s a brief look at three of them:
 
What is a rollover?
Per the IRS, a rollover is when a person requests a personal distribution of assets and/or funds from their account and redeposits, or “rolls,” the money into a like tax environment account within 60 days. In 2015, the IRS clarified the rules regarding IRA rollovers to allow account owners the option of only one IRA rollover in any 12-month period, regardless of the number of IRAs you own.   It is also useful to note, per the IRS, “The [rollover] limit will apply by aggregating all of an individual’s IRAs, including SEP and SIMPLE IRAs as well as traditional and Roth IRAs, effectively treating them as one IRA for purposes of the limit.”
 
If you’re planning a rollover, consult with your financial or tax advisor to determine the amount and timing that best meets your needs.
 
What is a personal distribution?
A personal distribution is when an individual withdraws funds and/or assets from their IRA to be used for their personal benefit.  It is important to be aware of the distribution rules the IRS has established for each account type, as there may be potential taxes and/or penalties depending on the type of account and nature of the distribution.
 
Keep in mind, if you are withdrawing assets and/or funds from one IRA and then depositing any amount of those assets and/or funds into another like account within 60 days, this may potentially be a rollover.
 
What is a transfer?
An institution to institution transfer is the request of funds and/or assets to be transferred from one institution to another.  The funds and/or assets are never received or held personally by the IRA owner and are directly moved from one institution to another at the IRA owner’s request.   This is often described as “transferring like to like.”

The IRS describes the difference between a trustee-to-trustee transfer versus a rollover in Publication 590-A, “A transfer of funds in your traditional IRA from one trustee directly to another, either at your request or at the trustee's request, is not a rollover. This includes the situation where the current trustee issues a check to the new trustee but gives it to you to deposit. Because there is no distribution to you, the transfer is tax free. Because it is not a rollover, it is not affected by the 1-year waiting period required between rollovers."

As always, consult with your financial or tax advisor to determine the strategy that best suits your needs and goals.