when funds are shifted straight from one ira

WHEN FUNDS ARE SHIFTED STRAIGHT FROM ONE IRA PLUS

As far as the IRS is concerned, an IRA-to-IRA transfer is simply a non-event. In fact, you could move very large sums of money from one IRA to another several times a year and you would never have to notify Uncle Sam or worry about a potential tax penalty. You don't even have to tell them about it. Since the money is never in your hands, the IRS has no right to charge taxes or early withdrawal penalties. The 'hands-off' nature of a transfer is its biggest advantage.

You won't even see the money as it gets transferred from one fund directly to another. Simply tell the administrators of the old and new accounts that you wish to make a switch, and the two custodians will organize everything on your behalf. Transfers are relatively easy to arrange because the plan administrators do all the heavy lifting. If you want to move funds between two different types of accounts, for example, a 401(k) to an IRA, that's called a rollover, not a transfer. There are various options for doing this, however, and each has its own rules and tax implications.Ī transfer occurs whenever you move funds between two retirement accounts of exactly the same type: a traditional IRA into another traditional IRA, a Roth IRA to a Roth IRA, or an old 401(k) to a new 401(k). IRAs offer a tax-advantaged home for your 401(k) fund, and you can use the money to buy stocks, bonds and other financial instruments to help you save for retirement.īy law, your employer must allow you to move your money into another retirement account of your choosing. To avoid a tax sting, most people choose to move their employer-sponsored account to another plan with a different employer, or move their funds to an individual retirement account. The Internal Revenue Service has the power to waive the early withdrawal penalty for certain hardship conditions such as medical or education expenses, but you still have to pay income tax on the distribution.

WHEN FUNDS ARE SHIFTED STRAIGHT FROM ONE IRA PLUS

Unless you're age 59 1/2, cashing in the account means you'll have to pay income tax on the withdrawal plus a 10 percent early withdrawal penalty. You may think about cashing out your 401(k) when you leave your current employer, but that's a terrible idea. What Happens to Your 401(k) When You Change Jobs? A rollover happens when you move money between two different types of retirement accounts. When you move money from one IRA to another IRA, it's called an IRA transfer.

When funds are shifted straight from one ira