Can You Do a Partial Transfer of an IRA?
Direct transfers are the preferred method for moving money between retirement accounts. This enables your current firm to pass it directly onto your new sponsor without going through you first.
Financial institutions typically withhold 20% of your distribution for tax purposes and require that it is deposited back within 60 days or you face additional taxes and penalties.
Partial rollovers
As individuals near retirement or change jobs, they may decide to transfer some or all of their retirement funds out of company plans into traditional or Roth IRAs in order to avoid high fees incurred from some 401(k) plans and take advantage of tax breaks associated with an IRA.
Rollovers of 401(k) accounts can be completed via indirect or direct transfers, the former requiring that all distributions must be deposited into an IRA within 60 days in order to avoid an early distribution penalty of 10%; individuals can opt for partial indirect rollover if they need more time depositing their money in their new IRA account.
Through trustee-to-trustee transfers, the financial institution that holds your new IRA account will transfer some or all of your old employer’s 401(k) directly into it without withholding taxes – for example transferring from traditional to traditional.
If you wish to transfer funds from a 401(k) into a Roth IRA, taxes may be due; however if both accounts were pretax 401(k), no tax liability would exist as these types of accounts are taxed differently.
Partial IRA rollovers are becoming increasingly popular with those dissatisfied with the investment options or fees of their current company’s 401(k) plan, or those looking to close any savings gaps between ages 55-59 1/2. While such moves can be complex and should be executed carefully to avoid penalties, partial rollovers can provide individuals with another way to continue saving for retirement while taking into consideration that each type of IRA rollover has an annual contribution cap of $5,500 per year.
Direct rollovers
Direct transfers or rollovers are the ideal method for moving money from one IRA account to another when changing jobs and consolidating retirement assets. This form of fund movement involves sending a check from your original plan custodian directly to your new IRA custodian for “the benefit of” (FBO), you as account owner – whether this account type be the same or something entirely different! However, ensure your new institution accepts your desired form of direct funding before initiating this type of fund transfer.
An indirect rollover requires you to accept the distribution and deposit it within 60 days into your IRA, otherwise, the IRS could treat it as a taxable event and you may incur income taxes as well as a 10% early withdrawal penalty if you are under age 59.5.
The IRS restricts how many indirect rollovers from any IRA into another IRA within any 12-month period. This includes traditional, Roth and SEP IRAs; an indirect rollover from traditional to SIMPLE or Roth to traditional is not permitted.
If you have any doubts as to whether a particular distribution qualifies for rollover, speak to either your new account administrator or employer’s human resources department. Some plans have special rules regarding when and into what accounts they allow rollovers; be mindful that state rules may differ from federal ones; for instance in some states you can only roll over employee-sponsored retirement plan funds into another 401(k) or IRA owned by your current employer, while other states restrict how pretax funds can be moved over into Roth IRAs or after-tax accounts – always consult an adviser or tax professional when making this decision.
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