Can You Partially Rollover an IRA?

Retirement savers who wish to transfer funds between employer plans are often faced with the daunting task of switching providers, which can be complex. To minimize tax consequences and avoid mistakes it’s essential that the transfer is managed directly by financial institutions – an approach known as direct rollover can provide this service without you needing to be involved directly in its transfer.

Partial rollovers

When an employee leaves employment, one option for rolling over their retirement savings into an Individual Retirement Account (IRA) may be beneficial. A partial rollover can be accomplished using trustee-to-trustee transfers; whereby, after receiving distributions from their retirement plan custodian, part of them are wired out directly to another institution for deposit into an IRA account.

The IRS grants individuals permission to transfer funds between different kinds of IRAs, such as Roth and traditional, within 12 months; this limit does not apply to SEP or SIMPLE accounts which can be converted to traditional ones.

Indirect partial rollovers allow investors to receive their distribution as a check, endorse it, and deposit it within 60 days into an IRA without incurring income tax or early withdrawal penalties. This ensures the 20% withholding requirement can be covered without incurring income tax penalties or early withdrawal fees on their IRA investment.


As soon as an employee leaves employment, they need to decide what will become of their retirement account. While some choose to keep it within the plan of their previous employer, others opt for rolling it over into an IRA with lower investment and service fees than many employer-sponsored plans.

Before initiating a partial rollover, it’s essential to understand how taxes and fees work. According to IRS rules, any distribution from either a traditional or SIMPLE IRA distribution constitutes a taxable event unless made through indirect transfers or direct rollovers involving trustee-to-trustee transfers; indirect transfers/direct rollovers fall outside this rule and should not be taxed as distributions; this is subject to 20% withholding as mandated by law – however this doesn’t always occur.

Your distribution plus the 20% withholding should be deposited into a rollover IRA within 60 days in order to avoid taxes on pretax contributions and earnings, and avoid mixing pretax with post-tax accounts as this could create tax liabilities.


Investing your IRA funds should not be expensive. While IRA investments can often cost more than those offered through employer-sponsored retirement plans, certain brokers such as M1 Finance offer numerous investment options with automated portfolio management – making them perfect for investors looking to keep costs under control.

Direct rollover is another alternative that involves receiving a check from the financial institution distributing your funds with instructions to deposit it directly into an IRA account within 60 days or face an early-distribution penalty of 10 percent.

Moving IRA assets between accounts requires using a trustee-to-trustee transfer, which is nonreportable to the IRS but may take longer. If planning on partial rollover, consult your tax advisor beforehand.

Investment options

Many retirement experts advise rolling over 401(k) funds into an individual retirement account (IRA), as it offers lower fees due to economies of scale and administrative advantages. Furthermore, an IRA also provides wider investment choices including exchange-traded funds and real estate investment trusts.

An IRA gives you more control of your investments and can accommodate accounts from former employers. Some brokerage firms offer cash incentives to encourage rollovers; such as TD Ameritrade which pays new customers up to $2,500 when they open an IRA account with them.

Partial 401(k) rollovers generally don’t incur taxes as long as money moves between accounts with similar tax treatment. For instance, funds transferred from an employer-sponsored retirement plan into a pretax IRA without incurring penalties are allowed without incurring income taxes or early withdrawal penalties; however, you must do the transfer within 60 days to avoid incurring income tax obligations and early withdrawal penalties as well as Required Minimum Distributions obligations.

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