If you have a Roth IRA and want to transfer your account to a new custodian, taxes and penalties can be avoided if you follow some relatively simple rules. To start, don't close out your old account before finding and making arrangements with a new custodian. That would result in receiving a distribution and could subject you to those taxes and penalties, particularly if you are younger than age 59½ or the Roth account has not been open for five years or more.
Among the options to accomplish the switch from one Roth account to a new one is by a direct transfer, which is the safest way.
Key Takeaways
- Roth IRAs can be transferred to a new custodian tax- and penalty-free if you follow IRS rules.
- A direct transfer between two custodians—or financial institutions—is the safest way to move Roth IRA funds from one retirement account to another.
- A transfer must be deposited in the new account within 60 days.
Direct Transfer
In a direct transfer, the current Roth IRA custodian, which is your financial institution, transfers some or all of the money in the account directly to a Roth IRA at another custodian. A direct transfer, also called a trustee-to-trustee transfer, is not subject to taxes or penalties.
You can transfer a Roth IRA from one provider to another without any costs. It is crucial to transfer the Roth IRA money to another Roth IRA, not to a traditional IRA or some other type of account. In general, it is usually best to have the receiving custodian initiate the transfer. You can ask your current financial institution to make the payment directly to the new Roth IRA.
The type of assets held in a Roth will also affect the process. The receiving custodian will typically ask you to indicate whether the assets should be transferred in-kind or, if non-cash assets, liquidated and then transferred. For example, proprietary investments, such as proprietary mutual funds, held in your old Roth account cannot be transferred to the new financial institution. Shares in such funds will need to be liquidated and the proceeds reinvested once they are transferred to the new Roth IRA.
Most financial institutions use the Automated Customer Account Transfer Service (ACATS) electronic system to transfer money between accounts. That generally takes about a week.
Buying or selling any securities in the account while the transfer is in progress is likely to complicate and delay the process.
Distribution to the Account Holder
Another option—albeit a riskier one—is to ask for a check from your existing custodian, but this makes it your responsibility to deposit the money into a new Roth account. In this scenario, the Roth IRA custodian liquidates the assets and either mails a check made out to you or deposits the funds directly into your personal bank or brokerage account.
In order to be considered a tax-free rollover to a new Roth IRA, the money must be deposited in that Roth IRA account within 60 days after you receive the funds. If the 60-day deadline is missed, the withdrawal will be considered a distribution of the assets, and some of it may be subject to income tax as well as a 10% early withdrawal penalty.
Roth contributions can be withdrawn penalty- and tax-free at any time, but their earnings are tax-free only under certain conditions. For example, the withdrawal must be made at least five years after the Roth account was first opened, and the owner must be at least age 59½.
If you do decide to do it yourself, make sure to document the process. If the IRS questions the transfer and you can’t prove you deposited the money in your new Roth IRA within 60 days, you'll get stuck paying taxes and penalties on it.
What Is a Direct Transfer?
A direct transfer, also known as a trustee-to-trustee transfer, is when a distribution from a Roth IRA, or any retirement account, is not paid directly to you. Instead, the financial institution holding your existing Roth IRA makes the transfer directly to your new Roth account. A direct transfer is the easiest way to avoid taxes and early withdrawal penalties.
What Is an Early Withdrawal Penalty?
You can withdraw earnings from a Roth IRA without owing taxes or penalties when you are age 59½ or older and if the account is at least five years old. This is known as the5-year rule. In general, if you don’t follow these rules, the early withdrawal penalty is 10% of the amount withdrawn. You may also owe income tax in addition to the penalty. You can withdraw contributions from a Roth IRA at any time.
How Much Can I Contribute to a Roth IRA?
In 2022, the annualcontribution limit for Roth and traditional IRAsis $6,000. If you are 50 years and older, you can contribute an additional $1,000. If you earn more than the income limits imposed by the IRS, you are not eligible to contribute to a Roth IRA.
The Bottom Line
It's possible to move your money from one Roth IRA custodian to another. As long as the money goes into another Roth account and no distribution is made to you, the transfer won't be subject to taxes or penalties. It's best to do it through a direct transfer to the new custodian, so you won't risk missing the 60-day deadline.
FAQs
As long as the money goes into another Roth account and no distribution is made to you, the transfer won't be subject to taxes or penalties. It's best to do it through a direct transfer to the new custodian, so you won't risk missing the 60-day deadline.
Can I transfer my Roth IRA to another broker without penalty? ›
You can move your Roth IRA from one broker to another. If you don't follow the proper process, you may have to pay penalties. There are restrictions on when you can withdraw funds from a Roth IRA.
How do I change my Roth IRA custodian? ›
If you want to move your individual retirement account (IRA) balance from one provider to another, simply call the current provider and request a “trustee-to-trustee” transfer. This moves money directly from one financial institution to another, and it won't trigger taxes.
How to transfer one IRA to another financial institution without tax penalty? ›
Trustee-to-trustee transfer – If you're getting a distribution from an IRA, you can ask the financial institution holding your IRA to make the payment directly from your IRA to another IRA or to a retirement plan. No taxes will be withheld from your transfer amount.
Is there a penalty for transferring a Roth IRA? ›
If you transfer your Traditional or Roth IRA at any age and request that the check be made payable to you, you have up to 60 days to deposit that check into another IRA without taxes or penalties. This is known as a "nontaxable rollover," and you can do this once within a 12-month period.
Can I transfer my IRA to another IRA without penalty? ›
You may be able to transfer money in a tax-free rollover from your SIMPLE IRA to another IRA (except a Roth IRA) or to an employer-sponsored retirement plan (such as a 401(k), 403(b), or governmental 457(b) plan).
How do I transfer my IRA from one institution to another? ›
Start by opening an IRA account at the new institution, and contact the original and the new IRA providers to initiate the transfer. You will be required to submit the required paperwork, and once approved, the old IRA institution will transfer the money to the new IRA institution.
What is the difference between a rollover and a transfer? ›
A transfer occurs when you instruct your custodian to move your assets from your current IRA to an IRA at another institution. A rollover, on the other hand, involves transmitting retirement assets to an IRA from a different type of account, like a 401(k) or 403(b). The IRS also treats them differently.
Does transferring a Roth IRA reset the 5 year rule? ›
Five-year rule for Roth IRA conversions
For example, if you do a conversion on May 1, 2024, the rule for that conversion actually begins on January 1, 2024. Each conversion or rollover you make is subject to a separate five-year waiting period.
What is the custodian fee for a Roth IRA? ›
Some Roth IRA providers charge a monthly or annual account maintenance fee (sometimes called a custodial fee). The fee—and the dollar amount you'll pay—should be disclosed in your account paperwork. If your provider charges an account maintenance fee, you might pay between $25 and $50 per year.
If you have an existing IRA set up at a bank or brokerage, you can complete an IRA-to-IRA transfer to move the funds directly into your new Self-Directed IRA. A transfer is a direct transfer from your bank or brokerage directly into your Self-Directed IRA.
Do IRA transfers need to be reported to IRS? ›
If you have moved assets directly from one of your IRAs to another IRA, this is considered a direct transfer. Direct transfers are not reported—either to you or to the IRS—and you do not have to account for them on your annual tax return.
Can I transfer money from one investment account to another without paying taxes? ›
Generally there are no tax penalties or fees associated with moving investment funds from one brokerage firm to another.
What is the 5 year rule for Roth IRA transfers? ›
The Roth IRA five-year rule says you cannot withdraw earnings tax-free until it's been at least five years since you first contributed to a Roth IRA account. This five-year rule applies to everyone who contributes to a Roth IRA, whether they're 59 ½ or 105 years old.
Can I have 2 Roth IRAs? ›
You can have more than one Roth IRA, and you can open more than one Roth IRA at any time. There is no limit to the number of Roth IRA accounts you can have. However, no matter how many Roth IRAs you have, your total contributions cannot exceed the limits set by the government.
What is the 5 year rule for Roth IRAs? ›
5-Year Rule for Roth IRA Withdrawals
To be tax-free, you must withdraw the earnings: On or after the date when you turn age 59½ At least five tax years after the first contribution to any Roth IRA that you own.
Can I transfer my Roth IRA from Vanguard to Fidelity? ›
One key area where Fidelity shines for investors is in the realm of Individual Retirement Accounts (IRAs). By rolling over retirement funds from a Vanguard account to a Fidelity IRA, investors can take advantage of the wide array of IRA options provided by Fidelity, including Traditional IRAs, Roth IRAs, and SEP IRAs.
Can I transfer my Roth IRA to Charles Schwab? ›
You can consolidate your IRA accounts by initiating a direct transfer between the new and old accounts. These transfers are straightforward if the account types are the same. Learn more about transferring to Schwab. Depending on your tax status, you might benefit from converting your Traditional IRA into a Roth IRA.
